The indices have bounced back from early weakness on Friday. After lagging the last few days, the Russell 2000 small-cap index is leading. The FAANG stocks had a nice bout of window-dressing mark-ups Thursday but are treading water now as the funds don't want to be too obvious about the games they are playing.
Breadth is better at around 4,000 gainers to 2,700 decliners due to the strength in smaller caps but new 12-month lows continue to exceed new highs.
The market action Friday has little to do with news flow and much to do with the fact that it's the end of the third quarter. There are many portfolio position moves being made and some fund managers are locking in gains after a big quarter.
This was a great quarter for the indices but much tougher for individual stocks, which is what causes underperformance for many fund managers. It is hard to keep up unless you were highly concentrated in the small group of big names that drove the indices. These money managers will be looking to make up ground into the fourth quarter. The easiest way to do that is for the market to pullback so that is what they are rooting for.
Nvidia (NVDA) , an Action Alerts PLUS holding, is up sharply on bullish comments which would ordinarily generate more attention but the news media are intently focused on the SEC charges against Elon Musk and the impact on Tesla (TSLA) .
Tesla has always been a battleground stock with the bears convinced that the business plan could not work while the bulls have been focused on the "genius" of Elon Musk. This news calls into question the fundamental belief in Musk and the Tesla story. That has always been the big risk here, and is likely to cause some of the hardcore bulls to give up on the stock.
Tesla stock had a brief bounce after the gap-down open but the dip buyers are not confident this time. The full ramifications of the SEC action are creating uncertainty and that is preventing the stock as being perceived as a value even though it is down more than $100 from the early August highs. Shareholder suits from both longs and shorts will be hitting very quickly.
The Tesla story is fascinating but there are better places to risk your hard-earned capital.