After three days of outperformance by small caps and growth stocks, the market reverted to big-cap leadership on negative breadth. The Dow Jones, S&P 500, and Nasdaq were positive while the Russell 2000 (IWM) dropped 1.65%, and breadth was 2,850 gainers to over 5,000 decliners.
This action is similar to what was going on last week when the indexes hit new highs, while there was a world of pain in many of the secondary stocks. These secondary stocks outperformed on Monday when the Dow had a huge drop and then built on the bounce the last two days, but many had become a bit overbought, and the rotational action went to work again in favor of the big-cap names.
This may just be nothing more than a readjustment after a sizable move, but we will have to watch tomorrow to see if this continues. The key is breadth. It is approaching two to one negative after a series of strong days, and if that erodes again, we will likely be looking at some retests of last week's lows.
The good news is that there is some support out there, and we are heading into earnings news that should shake things up, but the persistence of the flows into the stocks that move the indices is rather annoying for stock pickers.
The action may simply be some healthy profit-taking after a good run, but there is a risk that the rotation back into indexes and big caps is picking up again. We'll see how things develop from here, but there are plenty of good stocks under the surface, and if we stay vigilant, we will find some good setups.
Have a good evening. I'll see you tomorrow.