Is Penny Stock Trading a Sign of a Top or Just Part of a Normal Market Shift?
Conditions remain positive for selective stock pickers.
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After a breakout move on Wednesday, the indexes traded in a tight range to end the week. Breadth was slightly positive, and the number of stocks hitting new 12-month highs contracted from about 1,500 on Wednesday to 650 on Friday.
Volume on the Nasdaq remained elevated due to continued speculative action in penny stocks, but the meme names continued to drop after a couple of days of frenzied action to start the week. Conditions for a continuation of the meme action were not favorable. It will take more than a tweet for an old player to create sustained meme action.
The good news is that there has been improvement in small-caps, and it is looking more and more like this is a major shift in the group and not just another bout of limited relative strength. There is talk that the meme action and the penny stock trading is an indication of market excess and a potential top, but I believe that is reflective of a shift away from some of the very extended big-cap and Magnificent Seven names and into less extended small-caps that offer some good values.
Earnings season is essentially over except for Nvidia NVDA, which reports after the close on Wednesday, May 22, after the market close. This will be a very interesting report since expectations for a big beat are already quite high.
There isn’t much economic news coming up in the near term, but we will continue to hear from various Fed members. The CPI report gave the economic doves ammunition, but there is still great uncertainty about the timing of interest-rate cuts.
Overall, market conditions remain positive, and it is a good environment for selective stock pickers, although there are plenty of extended stocks.
Have a great weekend. I’ll see you next week.
At the time of publication, Rev Shark had no positions in any securities mentioned.
