The market's recent pattern of action continued today. The indices moved very little, breadth was negative, there was a high number of stocks making new 12-month lows and a similar number making new highs, but the FAANG names helped to hold up the indices and there were some good pockets of momentum.
There are enough positives to please the bulls, but there are sufficient peculiarities to give the bears some ammunition. If you glance at the indices, there don't seem to be any major problems with the price action, but the underperformance by many individual stocks is substantial.
I've discussed something called the Hindenburg Omen in a couple of my earlier posts. This indicator is an attempt to measure when the narrowness of the action becomes so great it creates structural problems for an uptrend. Markets are likely to reverse sharply at some point if the leadership is too narrow. That condition seems to be developing, but there isn't any confirmation in the price action of the indices yet.
Most of how you deal with this market depends on style. If you are anticipatory, then there are plenty of things to worry about and you may feel more comfortable being more cautious at this point. If you are reactive, then you are still finding some good movers and making money. You may be surprised by a reversal one day, but if there are picks that are working, why not take them?
I'm in the latter group and trying to make money on things like my Stock of the Week, 58.com (WUBA) . I am concerned about this narrowness, but it isn't doing any real damage to the market so far.
Have a good evening. I'll see you tomorrow.