There are two basic types of markets. There are index driven markets and there are stock-picking driven markets.
Most bear markets tend to be index driven. Stocks fall in tandem and without regard to their individual merits. Bull markets tend to be driven more by stock picking as market players are constantly looking for stocks that will outperform the indices. There are times when bull markets are driven by the indices but typically this occurs when positioning is poor and there is a rush to increase risk.
This simplistic view of the market has been corrupted to some degree by the big cap FATMAAN names. Stock picking has been narrower than normal as these eight stocks dominated the action. There has been good stock picking since the bottom in March but it hasn't been quite as lively as the indices would indicate.
Since the Nasdaq 100 (QQQ) started correcting seven trading days ago, we are starting to see a more normal bull market where stock picking is leading the action. Money has started to rotate out of the narrow leaders and is moving into a much broader group of stocks. Breadth today is running around 6000 gains to 1350 decliners but what is most interesting is that there are only 80 stocks near 12-month highs. That is an indication that leadership is shifting and there are thousands of new candidates that are perking up.
I expect that there will be some choppy and sloppy action ahead as we deal with weak seasonality and await third-quarter earnings but this is not a market that is on the verge of falling apart. It will take a major shift in the stock picking, and more correlated selling without regard to individual merit, to kill this market.
Some contrarians might view the good stock picking as a negative and they would have an argument if this was frothy action with extended charts and fundamentals, but that simply is not the case. The only sector of the market that had really become unsustainable were the FATMAAN names and now that is shifting.
Conditions can change quickly but this is very positive action and my plan is to stay focused on stock picking.