After weeks of steady selling of many speculative small-caps the pressure finally lifted on Wednesday. There was no significant news or major technical developments in the charts. The sellers just decided to relent, and as the day progressed buyers gained some confidence and put some cash to work in favorite names. There was a final surge of buying into the close.
The question now is whether this is a short-term bottom that will hold and provide a foundation for a recovery in many of the badly battered small-cap and growth names. There are plenty of obstacles to a continued bounce from here, but the good news is that we now have some support levels that will help to provide a framework for some trades.
In the early going on Thursday stocks are mixed and there are few signs of continued momentum. Bitcoin continues to see substantial pressure, which is hurting overall speculation. Traders hope that money coming out of cryptos will flow into speculative small-caps, but there isn't any clear evidence of that rotation.
Earnings reports continue to roll in and are mostly quite good. Only three stocks missed earnings estimates Wednesday night out of about 50 reports, but good reports have been expected and so far aren't doing much to impact sentiment.
From a technical standpoint the primary issue now is whether Wednesday morning's lows will hold. If bounces fail quickly and those lows are tested it is going to trigger some sell stops. Many of the small-cap specs and growth names have already corrected deeply, but the big problem is that the major indices have barely corrected at all and remain extended.
It will be tough for secondary names to keep running higher if the big-caps that drive the indices are struggling. There was some rotation out of FATMAAN names and into small stocks on Wednesday, but without stronger speculative energy out there it will be hard for that dynamic to continue.
The action on Wednesday was positive and there is now some technical support to work with, but it needs to hold and buyers need to make another thrust higher. There has been a lack of energy plaguing the market lately, and if that doesn't change it is going to be tough to keep this bounce going.