On the surface, this looks like a very normal trending market. As is typical, the strength in the indices has lasted far longer than many think is reasonable, and there are many proclamations that it can't last long and will end badly.
We have seen this sort of trending action quite often since the market hit bottom a little over a year ago, but this time there is one major difference. The difference is that there is a very aggressive rolling correction occurring in elements of the market that are not well reflected in the indices. There are bear markets in groups like biotechnology, gambling, SPACs, electric vehicles, cannabis, and several other sectors, but you would never know it from the indices.
Earlier this year there was a rotational correction in the FATMAAN names and many growth stocks that are now leading the indices higher. The traders that favored small-cap stock-picking were doing extremely well while the bigger names were struggling. The tables have turned recently, and now it is the institutions that enjoy the strong momentum.
The business media is doing a very poor job of explaining what is going on in the market. They are beholden to the major indices, and for most reporting, the DJIA is deemed to be the market. The weak action in major areas of the market is ignored.
Once we recognize what is going on in the market, the big question is how do we navigate it? This is a very difficult environment for most traders. On the one hand, we don't want to fight strong momentum in big-caps, but on the other hand, we don't want to fight weak momentum in small-caps. Can the small-caps find support if the big-caps slow and lose their momentum? Will the two groups start moving in tandem at some point?
No one knows the answers to those questions. We simply have to wait and see how this plays out. Earnings season is just starting and is going to influence how things progress, but we need to stay highly reactive to changing conditions.
Many individual traders are extremely frustrated right now as they struggle with poor stock picking while the indices are going straight up. The fact that the folks in the media are oblivious to the struggles under the surface makes it feel even worse.
My best advice at this point is to stay patient, work to protect capital, and have a shopping list in place so that you can move quickly as conditions shift. This is one of the hardest trading environments we have had in a while, and we have no idea what this market will do next.