In recent weeks the number of stocks hitting new 12-month highs has been at low levels for a market with indices so close to all-time highs. Breadth has also been a bit narrow.
Apparently what the indices needed was some rest.
The S&P 500 had three days in the red last week, which set the stage for a surge in momentum Monday. There are over 500 stocks hitting new 12-month highs today and breadth is running 5,700 gainers to 1,600 losers.
This is what a strong market is supposed to look like. There are pockets of strong momentum and the broader market is moving higher.
The question, of course, is whether the bulls can build on this action. This sort of momentum tends to crush those that stand in the way and the gains can be very sizable if you are in some of the high-beta plays.
The danger is that many stocks are becoming extended quickly and the pullbacks can also be sizable and fast. It is high risk and high return trading.
I try my best to navigate this sort of trading action by making partial sales of my biggest movers into the strength. For example, InMode (INMD) is trading up $6.25, or 15%, as I write. I've sold half of my position, have a trailing stop on another portion and will likely reduce it further later in the day.
Most importantly right now is to focus on stock-picking rather than indices. This is a market environment where finding the big momentum names will pay much better than trying to navigate market direction. I'll be looking for more buys even though the action does feel rather frothy.