Early strength has been sold once again but this time it is primarily the big cap technology and FAANG names that are the primary victim. Small caps (IWM) are trading up over 1% while the big cap Nasdaq 100 is down 0.5%. Breadth is still quite good with around 4,600 gainers to 2,550 decliners.
This correction started with the small cap stocks back in mid-September. The bigger cap names held up better but now the roles have reversed. The small caps are finding support levels while the big cap technology names are catching up to the downside. It is the logical way for the rotational correction to play out and may actually be a good sign.
If smaller caps are bottoming, as they appear to be, then we should start seeing better stock picking action. I notice for example, Twitter (TWTR) , is acting quite well today while Facebook (FB) is suffering from association with the FAANG names. That is a good sign when the market is making a distinction like that.
One problem with this sort of action is that the FAANG names and big cap technology stocks impact sentiment to a much greater degree when they are poor. Buyers aren't quite as willing to put capital at risk when they see that weakness even when there is some relative strength in smaller caps.
I'm encouraged by the way this is developing. That may not be much comfort to those that are focused on buying big cap technology names like Amazon (AMZN) but it does suggest that many smaller stocks, that have been in a bear market for a while now, are starting to find support.
I am looking to put more capital to work in select small caps.