It was an impressive day of gains for the market Friday, with the indexes gaining around 3% on breadth of about 6,675 gainers to just 1,600 losers. There was some talk that inflationary pressure is cooling, which helped to drive the action, and recession fears also appeared to dissipate, but a large amount of the action was driven by index rebalancing and is not predictive of further gains.
It is difficult not to feel more optimistic when the market jumps around 3% on huge volume, but the primary reason for much of the movement is that it is structural. It has little to do with fundamentals, technicals, or even macro considerations.
The process of adding and subtracting over $100 billion in stocks to various exchange-traded funds and indexes creates a lot of movement that tends to reverse over time. This could be something that kickstarts a sustained rally, but we'll see very quickly next week how well this holds.
One of the difficulties after action like this is that there are now hundreds of charts that are up on big volume and look quite bullish, but it isn't because they are being accumulated for bullish reasons.
The biggest positive this week has been that some of the worst groups like biotechnology are showing strong indications that they have seen meaningful lows. It will take more time to be convincing, but many stocks have been in a bear market for a long time and are holding up quite well.
Have a great weekend. I'll see you on Monday.
