The indices are looking for a positive open but have been slowly losing momentum overnight. News that Warren Buffett has invested more than $6 billion in five of Japan's biggest trading firms helped to boost sentiment overnight, but the primary focus this morning is on the reshuffling of the DJIA after the Apple (AAPL) split and some old names are replaced.
It is a dramatic change to the DJIA and will likely have some psychological as well as action impact. The DJIA is different in that it uses a price-weighted system rather than a capitalization system. The higher the price of a company's stock, the more impact it has on the indices. After the split, Apple now has 25% of the impact it previously had.
Each point that a stock within the DJIA moves has an impact of about 6.58 points on the DJIA. This is a decrease of about 6.8 points that was in effect on Friday.
The DJIA is going to look and move a little differently going forward and we will have to watch to see if that is a trigger for a shift in market character.
The more important question that market players need to grapple with is whether the recent momentum can continue. Strong markets tend to stay strong even when they are technically extended. They don't tend to suddenly fall apart. Usually, there is a transitional period before a downtrend develops but the shift back in February was more abrupt than is typical.
There has been quite a bit of rotational action lately and also a decline in speculative action especially in lower-priced stocks, but there is still some good technical setups for selective stock pickers.
The bearish anticipation continues to grow and keeps feeding short squeeze activity. There is no major shift in price action although many pessimists are pointing at the potential for a move out of growth stocks and FATMAAN names and into 'value' and financial stocks as the next logical shift in the market.
We shall see what develops but it should be clear at this point that trying to anticipate what the market is going to do next is an impossible task.
My game plan is to stay focused on stock picking, cut positions that are lagging, and be selective with new trades. If conditions change then I'll change my approach.