Stocks bounced back nicely on Friday, but it was a brutal week for many traders, and all the indices finished with losses.
Traders have been struggling with vicious rotational action out of growth stocks and speculative names for a while. On Monday, the major indices reversed intraday, and it looked like the gap between the leaders and laggards might start to close.
Selling accelerated on Wednesday, and some of the lagging names showed relative strength and raised some hope that a bottom might form in growth and speculative names. However, on Thursday, the rotation was back on, and the senior indices roared higher while growth and speculative names were pounded again.
Many traders were feeling quite discouraged after the poor action on Thursday, which turned out to be exactly the wrong time to be too negative. The growth names and speculative favorites moved steadily higher all day on Friday, and the bleak mood was lifted.
The mood swings and rotational action made for a very chaotic week, but the market has needed a shakeup for a while to help resolve some of the divergences created by the extreme rotational action.
There is some hope that the worst is over for now, but the danger of failed bounces cannot be quickly dismissed. Market players will be very intent on protecting gains produced by the bounce on Friday and will be fast to head for the exits should there be more selling pressure.
However, one big positive is that there is a large number of stocks that have already seen an extreme correction, and they are finding some support now. The big question remains whether they can produce relative strength while the major indices go through further corrective action.
Have a great weekend. I'll see you on Monday.