The Robinhood (HOOD) initial public offering sucked up quite a bit of attention from the business media, but the overall market is holding up well, and breadth has improved from 5,700 gainers to 2,200 decliners. New 12-month highs are expanding as well and are over 550 now.
Momentum has slowed, and there isn't as much chasing, but, most importantly, small caps are still benefiting from some rotation. I only see around 25 stocks up more than 10% today, which is less than half of what we had yesterday, but that isn't too surprising when dealing with stocks that have been in a downtrend for months. Many traders are looking to raise some cash as they cut recent losses.
What will be particularly interesting for small caps is that earnings season is starting for the smaller stocks. I see dozens of names that I actively trade with earnings announcement dates in the first two weeks of August. This can make for some very interesting trading, but it also creates some substantial risk. Smaller stocks are much more prone to big earnings surprises in both directions.
I have found that rather than betting on the outcome of earnings, it is often better to trade the reaction. There are often better opportunities and lower risks when dealing with a reaction to earnings rather than trying to bet on what numbers might be and how the market may react.
We do have some better action in small caps, but don't like that lull you into complacency as earnings reports roll in.