The indices looked dull, and breadth was negative on Monday, but there were some pockets of solid trading in speculative and small stocks. ARK Innovation ETF (ARKK) , which is a good proxy for high-beta, high-PE growth stocks, gained 1.4%, and the IBD 50 ETF gained 0.7%. Cryptocurrencies and related stocks were on fire, and that helped stoke speculative trading. However, oil and precious metals were treated harshly and were a source of funds for other sectors.
The rest of the market looked sleepy, but this sort of rotational action isn't that surprising during the dog days of summer. Traders quickly gravitate toward whatever happens to be working, but they don't necessarily stick around for long. It is a good environment for very short-term stock picking, and it doesn't hurt that there are some good earnings reports to act as catalysts. Butterfly Networks (BFLY) , which is my Stock of the Week, was a good example.
There always is a temptation to start anticipating downside in the indices when the market acts like this way, but the timing is problematic, and there are better short-term opportunities in stock picking than in market timing. This is a classic 'dull market' right now, and traders can easily find themselves in a poor position if they are too anticipatory in looking for downside.
My game plan is to stay focused on stock-picking and to try to find some opportunities among the secondary stocks that are reporting earnings. One group that is reporting numbers this week is cannabis-related names, and there should be some interesting action in that group which has been trying to turn up off some support levels.
Neither meme stocks nor FATMAAN names have been doing well, but the list of 10% movers is long, and that is where the opportunities lie. Cryptocurrencies look ready for some rest, but the trend there is strong, and another leg higher looks likely.
We have a mixed and flat start in the early going, but that may be exactly what we need for a continuation of the positive trading action.