Although there was rotational action on Thursday that caused softness in small-caps, financials and meme stocks, the overall market action continues to look quite positive. There has been choppiness as traders have chased hot action that fizzled out, but the S&P 500 hit a new all-time high and Alphabet (GOOGL) broke out and moved past its April highs.
The frothiness of some of the trading action in speculative names cooled off on Thursday, which helped to produce a pullback in the Russell 2000 ETF (IWM) of around 0.9%, but this was a healthy pause after very frisky action on Monday and Tuesday.
Market players had a perfect excuse for profit-taking on Thursday when the Consumer Price Index (CPI) number came in hotter than expected, but it was quickly shrugged off and the 10-year bond reversed sharply higher, with the yield falling to 1.46%.
European stocks are hitting record highs here on Friday morning. They are fueled by hopes that central banks will stay accommodative and will continue to view inflation as "transitory." Optimism about the reopening of the economy continues to build.
One of the most positive themes right now is the focus on stock picking. There is a lot of shifting and jumping around, but there is more interest in some of the struggling sectors such as special purpose acquisition companies (SPACs) and meme trading seems to be spreading beyond GameStop (GME) and AMC Entertainment (AMC) . Traders are not just focused on creating short squeezes but are looking for stocks with good stories, solid fundamentals and attractive charts.
This has not been a runaway market recently. There is a lack of energy in places, and there is skepticism. Traders do not appear to be overly confident, and that is a good thing.
I'll be focused on more stock-picking today. The indices are not a significant concern right now, but the rotational action will determine the themes stay hot. It may be a positive for the overall market if the meme stocks remain under pressure.