Despite the green indices, overall market breadth remains negative and small caps continue to struggle. The dilemma that traders face is that if the majority of stocks are weak when the indices are green then the likelihood is that they will continue to struggle if the indices turn down.
If DJIA isn't effective leadership when it is going up then what is going to happen when it goes down?
That is the dilemma market players are facing right now and it is keeping many on the sidelines. Rather than buy some of these dips they are worried that the Dow or S&P 500 may be dragged down by the weak small caps and nothing will bounce.
While small caps have been doing nothing for a while, the action yesterday and today is different. Bids are disappearing and quite a few stocks are breaking key support or suffering substantial losses.
One example is Sarepta (SRPT) which I've mentioned many times here. The stock is down over 12% since the close on Friday and there isn't any fundamental reason driving it. I suspect it is a combination of macro moves in the biotechnology sector at the start of a new quarter. Interesting stocks held up very well as the quarter ended but now many bids have disappeared and it looks like some major positioning moves are made.
When stocks move for reasons like this it should create good opportunities but trying to catch the falling knife is tremendously difficult.
I'm suffering some nicks and bruises in my small cap positions but I'm not yet convinced that this poor action is the start of a major change in market character. It is corrective action and feels worse in some ways because it is happening on a stealth basis but it does not feel like sentiment has shifted.
This has been one of my least active trading days of the year and it is going to stay that way until there is a shift in the action.