Stocks bounced strongly last Friday following a difficult week, but the trading environment remains very challenging. Despite a bounce in the Nasdaq 100 of 2.2% that took it back up to its 50-day simple moving average, it was still a negative week for the market.
Last week's primary issue was that the big-cap growth names that have been leading and are keeping the senior indices near highs finally started to correct. This put them in sync with much of the rest of the market, especially growth and speculative small-caps, but there continued to be some aggressive rotational action.
Many individual traders were feeling very beat up on Thursday as the rotational action out of their favorites continued, but they rebounded very strongly on Friday, which helped alleviate some of the pressure.
So the issue now is whether the corrective action continues to play out with a continuation of rotation in both directions or whether there is some support now that will help stocks work higher.
The biggest issue that traders must deal with is very poor charts. While many small-caps have already pulled back very sharply, they still are struggling to find support and to gain some sustained upside momentum. On the other hand, many big-cap names have only corrected for a few days and are still relatively extended.
The gulf between the stocks that started correcting back in February and those that started correcting last week is very wide and deep. The main challenge for traders is trying to navigate how it will close going forward. Last week there was some narrowing, but it occurred in a very chaotic way that is likely to continue.
I see few stocks with good technical setups right now. My game plan is to manage existing positions quite tightly and be aggressive in protecting capital. I'll also be very selective with new buys. I simply don't see many places for aggressive accumulation right now, but that can change quickly.
We have our work cut out for us, but we will find good opportunities if we maintain a positive attitude.