Since June 11, the S&P 500 has had seven down days and each down day was followed by an energetic bounce. Several of the one-day selloffs looked like they could be the start of another down leg but the buyers were having none of that.
The reversal on Monday looked ideal to produce some downside follow-through as the leading big-cap names finally trapped some of the complacent bulls. However, after a little early uncertainty, the indices rose the remainder of the day and closed strongly.
There was some rotational action under the surface and the Nasdaq 100 ( (QQQ) ETF) lagged but breadth was solid with 4,600 gainers to 2,700 decliners. The pockets of speculative action were busy again and the list of stocks up more than 10% on the day was quite higher.
Virtually everyone agrees that the indices need a rest. Both bulls and bears want to see some weakness. The bears want it so they can finally book some profits and the bulls want it so they can find some better entry points.
The fact that there is near-unanimous agreement that a pullback might be a good thing is one of the main reasons it doesn't happen. There is no real fear out there and there is plenty of liquidity. Before downside momentum can even build, the buyers are jumping in trying to catch the next big mover.
Another issue that affects the market is the high level of speculative interest. These traders don't even look at the indices. They just want to find the next hot stock and what the overall market is doing has no impact on that pursuit. The small-cap momentum trades such as Vaxart (VXRT) are working very well so why worry?
Perhaps earnings season will have some effect on these dynamics but the reports from banks Tuesday were a non-event. Next week when technology reports roll out we may see more significant responses.
It continues to be a market for stock-pickers rather than market-timers. Once you understand that then you will understand why the indices refuse to drop for longer than a few hours.
Have a good evening. I'll see you Wednesday.