A week ago the market was struggling with the issues of inflation, higher interest rates and a more hawkish view. The obvious logic was that these issues would create a headwind for stocks that have been running on easy money and would produce some corrective action.
Like many obvious things in the market, it didn't work. After a couple days of struggles, market participants shrugged off interest rate concerns and focused instead on economic growth and the strong action in individual stocks. Even cryptocurrencies came roaring back from an ugly technical breakdown.
The S&P 500 and Nasdaq are now at all-time highs and the other major indices are not far behind. Stock pickers are focused again on their growth favorites, but the good news is that it is not frothy action. We are not seeing the crazy chasing and wild speculative action that marked the top back in February.
While the indices did very well on Thursday, the thing that was notable was the pockets of momentum were fairly sedate. There were more than 450 stocks hitting new 12-month highs and breadth was 3 to 1 positive, but the list of stocks up more than 10% was relatively short.
It is a good setup for more upside, but the action here on Friday is not going to be typical. At the close the Russell indices are rebalanced. Trillions of dollars of stocks are impacted by these rebalancing acts. There will be hundreds of big blocks crossed at the closing bell and the volume on the Nasdaq will be some of the highest of the year.
It is important to understand that brokers have been working for a while to accumulate the necessary shares for the index funds. They are not simply buying at the close and causing a run-up. There will be some volatile action and even those stocks that are added to the Russell 2000 in sizable amounts can sell off as hedging and other moves are made.
After the close there will be hundreds of stocks with huge volume spikes. The charts will be corrupted by this action for a while, so keep that in mind when looking for new ideas.
We have a positive start on the way. Cryptos and oil are weaker, but watch for speculative traders to stay busy with the Russell index additions.