While the S&P 500 and Nasdaq managed minor gains for the week, the action under the surface was problematic. The Russell 2000 fell nearly 3%, and there was real ugliness in precious metals and many of the thinly traded stocks.
The big question is whether small-caps are the canary in the coalmine signaling that it is likely to be a bit bumpier as aggressive speculation cools off. The dip-buyers are still out there, but they weren't as energetic as they have been recently.
Markets that go up like this tend to be sticky to the upside. The folks who missed out continue to provide support, and that prevents us from suddenly falling apart. Tops take time to play out because sentiment doesn't change fast, especially when optimism has been rewarded so well.
If we take a step back and look at the big picture, it wouldn't be at all unhealthy for the market to correct a bit. It is going to take more than just a few days of weakness to kill this very strong trend that has been running since mid-December. We don't want to be dismissive of the negatives, but there are a few flaws in the action that we need to watch this weakness in small-cap and speculative names.
Have a great weekend. I'll see you on Monday.
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