All of the major indices moved higher to wrap up the month of May, but the big question as we move into June is whether there will be more rotational action.
Starting in mid-February, there was a vicious rotation out of growth and speculative favorites and into value, financials, oil, and other groups. Sectors such as biotechnology, gambling, SPACs, cryptos, cannabis, etc., were hit hard, but they finally started to find a bottom about two weeks ago and have turned up.
Probably the easiest way to see how the action has shifted is to look at ARK Innovation ETF (ARKK) , which is a good proxy for high-beta, high-growth names. ARKK fell from around $160 in mid-February to under around $97 on May 13. Since then, it has bounced back to around $113 and has been positive nine of the last 13 trading days.
Not only was the rotation back into growth names like ARKK and sectors like biotechnology, but the "meme" stocks came alive again, with AMC Entertainment (AMC) leading the charge higher for about a high-dozen names favored on social media.
While the action looks similar to what happened back in January and early February, it is not nearly as frothy or extended. The issue now is whether this rotational action will continue or will there be some pullbacks and consolidation before it can continue?
The good news is that this recent action has created some good support levels, and that will help charts to develop. In addition, many traders are not very trusting after being pounded on favored names while the major indices covered up the carnage. That helps to crates some "climbing the wall of worry" action.
The longer this action continues, the more FOMO, or fear of missing out, will occur. It is a much better environment for individual stock-pickers, but it is important to manage positions and be aware that this bounce action can trigger quick mood swings at times.
We have a positive open under way. Inflation fears have cooled, oil is breaking higher, cryptos are looking for support, and the FATMAAN names are positive. It is looking like a positive environment for traders will continue.