How I'm Responding to Poor Market Action

Market action has been poor on Monday morning, with breadth running 3,100 gainers to 5,800 decliners. There are about 165 names hitting new 12-month lows, while around 100 are at new 12-month highs. With indices hovering near all-time highs, it is unusual to see more new lows than highs, but that is a function of the very lopsided action favoring a small group of big-caps.

Nvidia NVDA is trading post-split and is down around 2% so far, but Nasdaq 100 QQQ breadth is running about even. Small caps are the laggards but are fighting back from a gap-down open.

Goldman Sachs provides a good illustration of why this has been a two-tiered market for so long. On the one hand, there are profitable big-cap technology names that keep hitting new highs while on the other hand there is nonprofitable technology that has never recovered following COVID-19. The group is still far from its 2020 highs. It makes sense that many have flowed into higher-quality names, but the lack of recovery in nonprofitable tech is quite remarkable.

I do not like this market action right now and am doing very little. I want to see deeper pullbacks in some of my favorite names before buying, and there doesn’t seem to be much strong momentum, as is illustrated by the narrow number of new highs.

An example of a stock I am watching is Sensus Healthcare SRTS. The company had a great first quarter and indicated on a conference call that the second quarter was doing quite well. The stock is quite cheap on an EPS basis and has a very strong balance sheet. It trades very thinly, so it tends to suffer in a market environment like the one we have right now when there is a limited number of bids. I am going to add it to my watch list at around $5.35, which is support. I’m looking to add additional shares if it pulls back further.

At the time of publication, DePorre was long SRTS.