After a respite that started on Monday when the senior indexes fell sharply, the market action has reverted to the same pattern as we had a weak ago. The indexes are hitting new highs, and big-cap names like Facebook (FB) , Roku (ROKU) , and Deckers Outdoor (DECK) are trading strongly, but overall breadth is running flat to slightly negative.
A good illustration of the disparity between the action at various levels is that breadth on the Dow Jones is running about three-to-one positive, while growth stocks that held are by the ARK Innovation exchange-traded fund (ARKK) are running at about three positions negative for each positive.
The folks in the business media don't pay much attention to this divergence, since they focus mainly on the indexes and well-known names, but for aggressive traders, the action is problematic, because it limits individual stock picking. The best speculative action and the biggest moves are usually in smaller stocks. The lack of trading opportunities is reflected in the fact that only a couple dozen stocks are making moves of more than 10%.
Perhaps chasing the big-cap strength is the solution to this situation, but these are not easy entries as they become increasingly extended. This can be very frustrating for aggressive traders to look for action, but the small caps just aren't working right now, and it is a mistake to force trades.
Unfortunately, this is almost the exact sort of setup that resulted in the sharp drop this past Monday. It is earnings season now, so catalysts are different, but this inconsistent action always results in a sharp reversion at some point.
I'm doing very little and have no interest in fishing weak relative strength right now.