Stocks were mixed and closed weak on Monday after a positive start. Market players have been struggling with rotational action and earnings news and have not been able to create sustained momentum in either direction.
Recent headlines about the surging number of COVID variant cases have not had a big market impact, but there is concern about some economic impact. The good news is that talk about inflation has disappeared and there is no immediate threat that either monetary or fiscal stimulus will subside.
The thing that has added to the difficulty of the market recently is the large gulf in performance between the indices and certain big-caps on the one hand and small-, growth names and speculative stocks on the other. The former is mostly extended technically and in need of rest and consolidation, while the latter has been correcting for months and is trying to find support.
The stocks that have performed the worst since February are exhibiting some signs of finding support, but they are not generating any sustained upside. When they do bounce, they tend to fade quickly. A good example is the MSOS cannabis names that had a good day Monday but are still below key trend lines and are not far off recent lows. The AdvisorShares Pure US Cannabis ETF (MSOS) bounced about 2% on Monday and we will see if the group can gain some momentum.
Part of the problem is that we are now in the dog days of summer and there simply isn't as much liquidity or trading interest. Stocks have had a tendency recently to start strong and then fade during the day after traders do some flipping and move to the sidelines. This is likely to continue for a while, but trading opportunities can still develop quickly so it is important to be vigilant.
Small-cap earnings season is starting today so we should have some news catalysts to work with, but many stocks are just drifting as traders wait for clarity, and that makes for a tough environment.