The big news this week was the market action expanded, and the Russell 2000 produced its best relative strength in a while. It was not a smooth move as the narrow strength was still quite prominent. On Friday, the Nasdaq 100/ Invesco fund (QQQ) took the lead again with a gain of 0.4%, while the Russell 2000 fund (IWM) faltered with a loss of 0.9%. The narrow strength was reflected in the poor breadth of about 3,000 advancers to 5,100 decliners. New 12-month highs hit close to 300 names.
The S&P 500 was strong enough on Thursday to close more than 20% off its 2022 lows, which created many headlines about a new bull market but plenty of criticism about the arbitrariness of the definition.
The good news is that price action is improved, and there has been better stock picking. Speculative traders have been more aggressive, and small-cap charts are improving.
The bad news is that some of the action in big cap names has gone from strong to frothy, and the talk about a new bull market is attracting contrarians that would love to short the celebration. It is still a narrow market, but it has improved. The better small-cap action is a major positive, but it can shift very quickly.
The market has been ignoring most macroeconomic worries recently, but there is a consumer price index report and retail sales numbers next week. On Wednesday, Fed Chair Jerome Powell and his crew announce the latest Fed interest rate policy. The market seems to have forgotten about inflation and the recession issue for now, but they will surely become critical again. The current expectation is that the Fed will forego a hike this month but will prepare the market for the likelihood of further hikes in the future. It is likely to be a pause and not a pivot.
It has been a good week for the bulls, but there is no guarantee it will continue. The market can shift quickly, so don't get too comfortable and stay disciplined with your trade management.
Have a great weekend. I'll see you on Monday.