"The Doctor said I had multiple personalities, but we don't believe him."
The mainstream business media always focus on the action in the major indices. If the Dow Jones Industrial Average is up and hitting new highs, everything is fantastic. If it dares to dip, then it is all doom and gloom. Sometimes, the indices are indicative of overall market health, but usually they fail to tell the whole story and are downright misleading.
During much of 2016, the indices tended to overstate the strength in the broad market. The outperformance by the big-cap FAANG names -- Action Alerts PLUS holdings Facebook (FB) and Apple (AAPL) , Trifecta Stocks name Amazon (AMZN) , Netflix (NFLX) and Google parent Alphabet (GOOGL) -- and a few DJIA names like Boeing (BA) had an outsized impact on the indices. The majority of smaller stocks did not outperform the benchmark indices.
Since late November, there has been a shift in the underlying character of the action. The indices have trended upward and picked up momentum during the first three days of 2018, but the real action in this market has been in the individual stock picking. There have been some pockets of momentum unlike anything that we have seen since the dot.com bubble back in 1999-2000.
The "bubble" action this time is narrower and has not included many big-cap names, but it is significant and is understated by the indices. Aggressive traders like me are experiencing some of the best trading they have seen in years. Many of these stocks are absolute junk and will not hold their gains, which scares away longer-term, more conservative investors, but the positive sentiment this action creates spills over to the broader market.
Some bears are likely to conclude that this speculative action in these secondary names is a sign that the bull market is in the very late innings. Maybe so, but this sort of action almost always goes to great extremes. There are just too many traders out there that want to join the party as they watch stocks like ChinaNet Online (CNET) go up seven-fold in a single day.
During much of 2016, the indices overstated market strength. Currently, they are understating the market strength in many places. The indices have momentum and are hitting new highs, but the underlying stock picking is where the big action is occurring.
We have another positive open on the way, but the jobs report is coming up and may cause a jiggle or two. The bears are focused on inflation worries as a possible negative market catalyst and the jobs news today will impact those expectations.