Are the meme and momentum/small-cap traders giving up?
No. I don't think so.
Like every other trading group in the industry, there will be bumps in the road. As the trading group spread out from GameStop (GME) and AMC Entertainment (AMC) , it was quickly discovered that holding multiple names well above fair market value is a huge challenge both financially and emotionally.
The term "meme stocks" is grossly overused at this point. It's momentum plain and simple. GME, AMC, and a few others could be called meme stocks, like maybe Sundial Growers (SNDL) , but we're limit up on the use of the phrase.
I'd say the start of July falls into the bump category. I have been mostly away for the last week, so I'm playing catch-up, but the few times I managed to check in, it was pretty ugly in the momentum and small-cap names. After being away for the week, I had to sit on my hands today and watch.
Large-caps led the way yet again on Friday sentimentally. Thursday's pause in the large-caps appears to have invigorated the small-cap traders Friday to push the Russell 2000 higher by 2%. That's a positive. Not because of the size of the move, but the fact we saw a strong continuation.
I don't mind when large-caps and small-caps move together, but to have a market led by a narrow group of large-cap names like we've seen as of late is not only dull, it's misleading. It's easy to get trapped in smaller names believing the market is strong. When we have narrow leadership, mistakes aren't easily forgiven like they were last year.
I don't think we're done on the small-cap side after Friday's bounce. Bulls will need to show some strength on Monday as a gap down would likely kill Friday's momentum, but if we can open flat or slightly higher, I envision next week will turn into a trend higher move. This excites me. Unfortunately, chasing FAANG names doesn't.
It's not that you can't make money with FAANG, but you're a slave to the crowd and to market beta. There's less opportunity to outperform.
If you want to catch a home run or a grand slam, odds are you will have to use a very aggressive option to do it. I don't like my odds.
As of now, I'm staying with a focus on individual names that are lesser followed by Wall Street and more in tune with the sectors I love for the next several quarters and several years.