Is the Small-Cap Rotation Real or Bogus?
The market is at an interesting juncture, and the coming week will reveal a lot as heavy hitters Alphabet and Tesla report earnings.
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It was an extremely chaotic week for the markets due to wild rotational action and political drama. To wrap things up, there was a massive software glitch on Friday caused by a failed CrowdStrike CRWD upgrade of its computer security programs. The glitch not only affected airlines, banks, and Microsoft MSFT software but also shut down trading at some brokerages. I was unable to place any trades at Charles Schwab SCHW due to the problem.
It looks like there was some impact on trading volume, but ultimately, it was another dismal day, with breadth running over 2 to 1 negative and new 12-month lows now at about the same level as new 12-month highs. Magnificent Seven and semiconductor stocks had another poor showing, and a solid earnings report from Netflix NFLX was unable to keep it in the green.
After blasting higher on four straight days, the Russell 2000 IWM has given back a bit less than 50% of recent gains in the last three sessions. There still isn’t much support on the chart, but the selling did slow a bit, and we’ll see next week if the small-cap rotation really is a "thing" or just another false move like so many others in the past year.
Earnings season picks up with Alphabet GOOGL and Tesla TSLA next Tuesday night, but the reaction of Netflix may be a signal that expectations are still very high and a simple beat may not be good enough to keep things running.
We are at an interesting market juncture with the likelihood of interest-rate cuts increasing and signs of economic slowing. A very narrow big-cap-led market lasted for quite a while, but that is shifting, and it isn’t quite clear how things will evolve.
Regardless of what happens, we should have increased volatility and more trading opportunities.
Enjoy the weekend. I’ll see you on Monday.
At the time of publication, Rev Shark had no positions in any securities mentioned.
