It’s Hard to Be Bearish With This Many Stocks Making Big Moves
The indices stalled while 150 stocks gained more than 10%.
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It was a messy day on Thursday with breadth running 43% positive and all the major indices finishing in the red. The Magnificent Seven squeezed out a gain of 0.2% due mainly to a new high for Microsoft (MSFT).
Underneath the surface there were 207 new 12-month highs against 107 new lows. The most interesting statistic was that there were around 150 names up more than 10%. That is an unusually high number and it reflects some strong responses to small cap earnings reports. Most of these are secondary names that you have never heard of but it is unusual that so many are doing so well. When you have that many stocks jumping, it is hard to be too bearish.
The Question Is Still Open
The action on Thursday left unresolved the bigger question of whether Wednesday and Thursday were a brief pause and rest before another push higher, or stalling action that will produce a deeper rollover. It is healthy that there is a pause after a fast and furious rally, but will the buyers make another push?
That is not a question anyone can answer from two sessions of chop. What we know is that the market went up hard on Monday and Tuesday on positioning and FOMO, and then spent two days going nowhere. Both interpretations remain available and the market has not given us a solid clue so far.
Part of the answer comes Friday morning with the July payroll numbers.
The Tailwinds Lost Traction
One of the issues at play on Thursday was that oil was higher and bonds were weaker. Those two things provided a bit of tailwind for the move earlier in the week and they have now lost their grip.
That matters because they were doing more for the market than most people recognized. Monday’s rally ran on crude dropping 5% and yields falling, and both of those reversed within 48 hours. A market that keeps its gains after its supports are removed is showing strength. A market that stalls is telling us that oil and interest rates were the story and not fundamentals of valuation. We have had two days of stalling.
Game Plan
I am busy trading small-cap earnings reports and have not been too concerned about the index action.
These earnings reports are where the opportunity is right now. A hundred and fifty stocks up more than 10% in a single session is a target-rich environment regardless of what the S&P does, and the reports keep arriving. The dispersion I expected from this group is showing up and it is producing entries for aggressive traders.
The jobs number on Friday could produce a surge in volatility and I see no edge in guessing at it. My cash level is adequate, my list keeps growing as more companies report, and the setups I want will still be there next week whatever the number says.
Have a good evening. I’ll see you tomorrow.
At the time of publication, DePorre had no positions in any securities mentioned.
