If you try to navigate this market by looking at the major indices, you are going to have a very difficult time. The indices are supposed to provide a snapshot of overall market health. Sometimes they do a pretty good job of it, but quite often, they can be quite misleading. The action of the past week was a particularly good illustration of how the indices don't really tell the story.
The key to the market for a while has been rotation in and out of various themes and sectors. We've had the 'work at home play,' the 'reopen the economy' play, big-cap growth stocks, value plays, SPACS, pot, solar energy, EVs, etc.
Last week a new theme developed, which was the social media-driven short squeeze. The theme worked for a few stocks, but it had an outsized impact on some long stocks favored by big hedge funds. The selloff in those names convinced some market pundits that a major market correction was about to begin.
What they missed was that liquidity never really disappeared. It just rotated into the short squeeze plays. It did create a little more correlated selling, but the buying interest never disappeared, which was why I was not overly concerned about the action, although the indices did fall quite a bit.
The point here is that to navigate this market effectively you have to keep looking at leading sectors and themes and watch where the money is rotating. Currently, this is a very broad action again, with many things working due to the strong breadth. It is actually a bit overwhelming because there is so much going on.
I'm looking to put more money to work into the close. There are plenty of charts that look strong, and if we close well today, I anticipate momentum to continue.
Don't forget we have some major earnings coming up as well. The market has not paid much attention to earnings so far this season, but with the short squeeze theme losing steam, there should be more focus on the reports starting tonight.