The basis of contrary investing is that when everyone recognizes something, it is unlikely to continue because everyone has already acted, and there isn't much capital remaining to drive the trend. In theory, it is very logical. If everyone is bullish, then they have already put their money to work, and there isn't much buying power.
The problem with contrarian strategy, however, is that there is often a very wide disconnect between what people think and believe and their actions. There are many cases where there is a high level of bullishness, but still plenty of capital to put to work.
The current big-cap action related to artificial intelligence is a good illustration of the conundrum. Everyone is aware of the strength, and they are still chasing it on Thursday morning. Nvidia (NVDA) , Meta (META) , and Apple (AAPL) are pushing higher once again, but have the stocks reached the point where there isn't much buying power left to drive them even higher? Some bears will argue that is the case, but the folks that have been left out are extremely anxious to gain some exposure. They may be unwilling to chase new highs at this point, but they are going to be very aggressive at buying any weakness. We are seeing this very clearly in NVDA, which dipped on Wednesday but is rebounding right back up on Thursday.
Breadth is better today at two-to-one positive, but we see almost four times as many stocks hitting new 12-month lows than 12-month highs. Retail is the weakest sector, but small caps -- as seen in the Russell 2000 fund (IWM) -- are outperforming for a change.
This market requires a trading style that favors narrow big-cap leadership. If that isn't your style, then you probably are struggling. I'll be discussing trading style and market conditions in my column this weekend.
My Stock of the Week, IonQ (IONQ) , which is a quasi-AI play, is hitting the new closing high area of over $11. It is a good example of how buyers that don't want to chase are creating solid underlying support.
Ocular Therapeutix (OCUL) has been on my radar for a while. It will be presented at the Jeffries Global Healthcare Conference next Thursday, and I'm anticipating some positive comments.
It remains a very tough environment for small caps, but we'll see if things broaden out as we move into June.