The week started off with a very ugly intraday reversal on Monday that hit the leading stocks in the Nasdaq 100 very hard. The last time there was a reversal from highs of this magnitude was back at the top of the bubble in 2000.
It looked like the bears were in position to see some much-anticipated corrective action but once again there was no follow-through.
There was some further rotation out of value and into growth but it was not enough to shift the indices. On Friday a poor report from Netflix (NFLX) failed to pressure the overall market.
The bears are confused and frustrated by the market's refusal to roll over but they seem intent on overlooking one very important aspect of the action. That is the surge in trading by retail investors. These traders are now making up 20-25% of overall action but they are given little respect by sophisticated Wall Street professionals who view them as a nuisance and a contrary indicator.
The problem for the market-timer bears is that these aggressive speculative traders are focused on one thing --price action. They don't care about fancy macroeconomic arguments or spreadsheets that calculate discounted cash flows. They want stocks that are going up and as long as they can find them they will stick around.
If you want to try to measure how much longer this market can run then you need to understand what is going on with Ma and Pa Sixpack who are helping to drive some of the highest market volume ever.
Next week, earnings season starts in earnest and we will have some interesting catalysts. Earnings season will help to keep the focus on individual stock-picking. We will have to watch for themes to develop and if there are more reports similar to the one issued by Netflix it may be a problem.
Have a great weekend. I'll see you on Monday.
