The Action Has Finally Shifted
Though there is a lot of dreary market action under the surface, some money has rotated into lagging areas.
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The recent pattern of action finally shifted on Thursday. The S&P500, Nasdaq 100 QQQ, big-cap technology and Nvidia NVDA hit new highs early in the day and then reversed lower. They avoided closing at the lows of the day, but it wasn’t the same pattern of accelerated buying in the final hour.
The good news is that some of that money rotated into lagging areas of the market, such as the Dow Jones Industrial Average, which led to a gain of about 0.8%. Small caps continued to languish, which helped to keep breadth negative, with around 4,000 gainers and a decline in the 5,300s.
There is a lot of dreary action under the surface, but at least it wasn’t totally covered up this time with narrow strength. The question now is whether the corrective action can start to gain a little more traction as Nvidia and others start to see slowing momentum.
There isn’t much news flowing right now, but the economic latest that has been trickling in has not been robust. There is cooling in jobs and housing, but the market seems confused about whether that is positive because it is anti-inflationary or negative because it may hurt corporate profits.
Friday, we have option expiration, which is over $5 trillion and the biggest ever. This may cause a higher level of volatility, but that may not be bad as we need to reduce some of the overbought readings.
I do not like this market action very much right now, as individual stock picking is very difficult while the small group of big-cap names attracts both inflows and attention. We may be seeing the start of a shift in the market action, but it is going to take time for a better trading environment to develop.
At the time of publication, DePorre had no positions in any securities mentioned.
