Stocks struggled last week as they dealt with a 'sell the news' inclination into some solid earnings reports. Names like Facebook (FB) and Alphabet (GOOGL) managed to hold on to most of their gains following blow-out reports, but other names like Apple (AAPL) and Amazon (AMZN) were unable to gain traction despite stellar earnings reports.
Earnings season continues this week, but most of the leading names have now reported. There are still plenty of big-cap stocks that will be issuing numbers, but there are many more small-caps issuing numbers in the next two weeks.
The selling into generally good news last week was a market negative but not a big surprise that extended technical conditions in the senior indices. There has been a large disconnect between big-caps and many of the small-cap names that were leaders earlier in the year. This narrowed a little last week, but the big question remains how that gap will close in the future. Are the small stocks that have been in a bear market going to show better relative strength and start to catch up, or will the big-caps struggle to close the gap?
The primary issue that traders are struggling with is whether smaller stocks can regain better momentum while big-cap names correct. It happened for a while earlier this year, but it is unusual. While there are many small stocks that are washed out with solid stories and fundamentals, traders typically lack the confidence to pursue them when the major indices are struggling.
In the early going on Monday, it is looking like the 'sell the news' inclination is being shrugged off, but we'll see how that develops. The senior indices are still overbought and need further consolidation to build a better base of support for a move higher, but buyers are not always very patient.
My game plan is to stay focused on price action and see how stocks deal with digesting earnings news. Many of the stocks I favor will be issuing earnings soon, and I'll be looking for catalysts to develop once the news is released.
The mood is looking positive this morning, but we'll see if it persists once the opening bell rings.