Emotional Market Environment Favors This Kind of Stock Picker

Rotational action into smaller stocks continued on Monday, with breadth running from 5,200 gainers to 4,150 decliners. Around 1,350 stocks hit new 12-month highs, which is what happens in real bull markets.

After the dramatic events this weekend and a major shift in political fortunes, the day had a strong emotional feel, and the larger-cap indexes and stocks fizzled as the day progressed. Both the S&P 500 and Nasdaq 100 QQQ closed near flat, likely due in part to extended technical conditions, while the Russell 2000 gained an impressive 1.9%.

UnitedHealth UNH reports in Tuesday morning, but we will have to wait until Thursday night and Netflix NFLX before we see numbers from the names that are most likely to move the overall market. We have some economic data coming up as well, but nothing that is likely to be market-moving.

The political situation has been so emotional that it is spilling over and having an impact on the market. It is difficult to judge how long this will last before there is a shift back to more fundamental economic and valuation issues. For now, the mood is very upbeat, and it gives the bulls momentum.

In addition, there is growing confidence that real rotational action is finally taking hold. There have been a few tries at rotation in the past year, but they all fizzed out very quickly as investors returned to the Magnificent Seven and ignored everything else. This action is developing differently, and there are signs that this improved breath may continue.

It is an unusual mix of emotions and price action, and it favors stock pickers who are focused on small and secondary stocks.

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

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