Following a surprisingly poor April jobs report on Friday, stocks managed a robust rally. Breadth was very good, and, most significantly, many of the laggard high-beta growth names and speculative small-caps managed a bounce after some extensive pressure.
What has been most notable about the market for many weeks now is the rotational action. It has not been at all evident in the S&P 500 and DJIA, but under the surface, there has been some extremely bearish action in many growth stocks and speculative sectors like biotechnology and SPACs.
The indices give the impression of a very broad uptrend and overbought conditions, but the reality of the market has been much different. It has been a great market for buy-and-hold of value and stocks with lower volatility, but it has been extremely difficult for traders that focus on high volatility, growth stocks, and theme-plays.
The big question to contemplate is how this rotation will play out in the weeks ahead. Most importantly, the big question is whether the lagging speculative and growth stocks can bounce back if the indices start to stall. Right now, that isn't a big question as the uptrend continues and new highs are occurring on a daily basis, but what happens when this trend starts to shift.
In the very early going this morning, commodity stocks are driving the senior indices higher. Cooper is ripping higher, and the shutdown of a major pipeline due to a cyberattack is having a major impact on gasoline and diesel fuel. At the same time, all of the FATMAAN names are indicated lower.
This market is all about the rotations and not the indices, which are now as deceptive as I've ever seen them. Focus on sectors and individual stocks if you want to navigate this market. Ignore the yammering on financial television about the DJIA and new highs and focus on rotational action instead.
This has been one of the toughest trading markets I've encountered in quite a while. If stocks were moving in a correlated manner, we could look to the indices for guidance, but currently they mislead more than they illuminate.
