Investors are up against overbought technical conditions and some frothy sentiment as we head into earnings season.
Breadth is running close to even with Tesla (TSLA) and bitcoin-related names leading to the upside. Morgan Stanley (MS) is also doing well following its earnings report, but otherwise, it is a mixed bag.
Some of the small-cap names I favor, such as Beyond Air Inc. (XAIR) and Sensus Healthcare Inc. (SRTS) , are developing well. Also, some biotechnology names that I follow are developing, such as PDS Biotechnology Corp. (PDSB) , Actinium Pharmaceuticals Inc. (ATNM) , Catalyst Pharmaceuticals Inc. (CPRX) , and Humacyte Inc. (HUMA) , but this is partly due to the January Effect. The January Effect, which is when stock prices rise during the month after a tax-related sales from the previous year, is helping many small caps bounce back after selling pressure late in 2022, but the charts need to find support, and they need good earnings to keep the trend going.
Better-than-expected inflation news, the "January Effect" and strong breadth had given the market a good run -- but some consolidation is needed, and momentum is now cooling off.
The S&P 500 shrugged off some slight early weakness and moved higher on talk of a more dovish European Central Bank, but that didn't last long. Traders took some profits into strength, and selling accelerated once the indexes turned negative.
The market needed some rest and consolidation after the recent run. There is a bit too much optimism about the "breadth thrust" readings (for more about that, see my earlier column here), and there is a danger that earnings expectations may still be too high.
There are some positives out there, but it will remain a bumpy ride.
(Please note that due to factors including low market capitalization and/or insufficient public float, we consider some of these stocks to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.)
