Small Stocks Outperform as Indexes Look for Support Levels

Market action was choppy on Tuesday following a weaker-than-expected PMI Services report and comments from President Trump about tariffs on pharmaceuticals and semiconductors. Relative strength in small-cap names helped to keep breadth close to even, but the Magnificent Seven names and the S&P 500, lagged with losses close to 0.5%.

After the big selloff on Friday and the recovery on Monday, the market needed to consolidate as some folks used the bounce to reposition. Technically, the indexes are still vulnerable and need time to find better support.

The good news is that there is rotational action into secondary stocks and some good speculative action in smaller names. The list of stocks moving up more than 10% was unusually long for a day when the S&P 500 lost nearly 0.5%.

Peak small-cap earnings season begins on Tuesday night and runs through August 15. There will be plenty of big movers in smaller stocks on these reports. There is a very high level of risk in these small-cap reports, but the post-earnings volatility can make for some interesting trading.

Overall, the market remains healthy as long as the S&P 500 can hold above the low hit on Friday, which was around 6212. Action is likely to stay choppy, but Monday proved that there is still strong dip-buying interest. Upcoming negative seasonality could be self-fulfilling to some extent, so it is important to manage positions carefully if support levels start to crack.

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

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