The indexes continue to blast higher in a near straight line, but the nature of the action shifted Wednesday and caused some consternation among market players.
Based on the Dow Jones industrial average, it was another stellar day with a gain of over 2% and breadth of 5,700 gainers to 1,750 decliners. Around 240 stocks hit new highs, which is the most since the coronavirus crisis started back in February. The Dow stopped right at its 200-day simple moving average, which it hasn't surpassed since Feb. 27.
What was most notable about the action Wednesday wasn't just the strength, but the stocks that led. The Nasdaq 100 (QQQ) managed only a quarter of the gains earned by the Dow as the FAANG names and sectors like biotechnology lagged.
The primary strength was in banks and financials, but also semiconductors and industrials did well. Most of the strength was in names that have lagged the fast and furious "V"-shaped bounce since the March low.
The bulls celebrated the action as a healthy rotation that will allow the market to continue to run higher, but such rotations are generally not such a simple task. Bull markets -- especially as they mature -- tend to be led by growth stocks and sectors like FAANG. Value names and laggards like Boeing (BA) provide a big boost like they did Wednesday, but they don't usually produce sustained momentum.
Regardless of the underlying rotation, the indexes continue to run over any and all skeptics and bears. The fundamental arguments have never seemed more irrelevant than they do right now. The underlying price action caused me some concern, as the leading stocks showed an inclination to correct, but it isn't enough to make a big defensive move.
We'll see if the market can build on the day's action, but last week we saw the rotation into banks and "value" fizzle quickly. The old leaders quickly stepped up again and they keep the uptrend running -- but it created some chaos under the surface.
Sector rotation is the name of the game right now and will provide us with some insight as to what lies ahead.
Have a good evening. I'll see you tomorrow.