Big Runup Leaves Market Vulnerable Into Earnings

The market pattern of poor breadth and big-cap technology strength has persisted for so long that it has become both ridiculous and annoying. Once again, the DJIA and Russell 2000 are negative, while the Nasdaq 100 QQQ and S&P 500 are positive and breadth is solidly negative with about 4,000 gainers to 5,250 decliners. There were over 700 new highs, which shows that the action isn’t terribly narrow, but the disparity in performance is at historic highs.

Jerome Powell testified before the Senate on Tuesday morning but didn’t say anything of great interest. He will be before the House Wednesday for a repeat. The CPI report on Thursday will be notable, and then bank earnings and Michigan sentiment on Friday should see a reaction.

Technically, there was a mild intraday reversal in all the indexes, but it wasn’t too severe, and all the indexes closed with just minor moves.

There is growing anticipation among sophisticated investors that the market is near a turning point. However, they are waiting for weak price action before they become more bearish. No one wants to be caught in a short squeeze, especially when the market action has been so crazy for so long.

The biggest negative right now is that with this big runup into upcoming earnings, expectations are very high, and it is going to take some big beats and strong guidance to keep the momentum going. On the other hand, there are still hundreds of small-cap stocks that offer good values and are not at all extended.

Have a good evening. I’ll see you Wednesday.

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At the time of publication, Rev Shark had no positions in any securities mentioned.