A primary theme of the market in 2021 has been inconsistency between the major indices and the great majority of individual stocks. For much of the year a small handful of big-caps have driven the indices higher while many stocks have struggled or even dealt with bear markets.
One of the simplest ways to see what really is going on in the market is to look at the number of stocks trading over their 200-day simple moving averages. This is a level that tells us quite a bit about the level of momentum in the market.
The S&P 500 is trading well above its 50-day simple moving average and is just one day off its all-time high. By comparison, more than 55% of all stocks are under their 200-day simple moving average. They are nowhere near their all-time highs. The percentage of stocks over their 200-day averages has declined from around 75% to start the year to just 45% here on Thursday morning.
The underperformance of the majority of stocks versus the indices has been very obvious for a long time but receives little attention. Wednesday was a good example as the business media focused on how well the Nasdaq performed while the Russell 2000 was pounded for a loss of nearly 1.9%.
Much of the weakness in small-caps was due to reversals in energy and financial stocks that are a large percentage of the Russell names. While softness in cryptocurrencies also caused some problems, there were pockets of aggressive speculative action in some select special purpose acquisition companies (SPACs) and a few other areas.
Earnings have been a mixed bag, with a few big-cap names such as Microsoft (MSFT) and Alphabet (GOOGL) driving the indices but other growth names such as Twilio (TWLO) have been hit hard. Both Apple (AAPL) and Amazon (AMZN) report after the close here on Thursday and will be the primary movers of the major indices.
While the action on Wednesday was quite messy with the inconsistency and rotation, it was just another step forward in consolidating recent positive action. Technical conditions for positive seasonality are developing well, and it is going to be very interesting to see how many of the ignored small-caps react when their earnings reports hit in the next couple weeks.
We have a positive start on tap here on Thursday morning with cryptos bouncing, but the inconsistency Wednesday is causing some uncertainty.
At the time of publication, Rev Shark had no positions in the stocks mentioned.