Small caps have been outperforming the broad market for a while now and managed to pick up the pace Thursday as big caps names sold off into the close. The S&P 500 finished down 0.36%, and the Nasdaq 100 exchange-traded fund (QQQ) dropped 0.57%, while the Russell 2000 ETF (IWM) jumped nearly 2% to a new all-time high.
There is obviously some rotation taking place, but there were 5,100 advancers to 1,250 decliners, and around 1,250 stocks hit new all-time highs. That is very healthy internal action, but all of the FATMAAN names were down today, and big caps were a drag in general.
This is fantastic action for small traders that are aggressively trading individual stocks, but it is very frustrating for money managers who are trying to navigate with a portfolio of well-known S&P 500 names. Many of them are having a hard time hiding their annoyance, as a bunch of amateurs rack up big gains in numerous "junk" stocks.
My solution to this issue is to do what works and what is clearly working is trading small caps and hot sectors. There is always an opportunity for the flexible trader who focuses on price action. The special purpose acquisition sectors continue to offer a steady diet of trades, and we had some fun with the "space exploration" trade on news of a new ARK Innovation ETF (ARKK) .
The market was a bit sloppy late in the day on news that President-Elect Joe Biden may not support a full $2,000 stimulus payment, but that news hit the S&P 500 much harder than the small caps, which sounds a bit illogical.
We have a long weekend coming up, and there might be some inclination to harvest big gains Friday, but that sort of simplistic thinking has often been a trap for traders who keep hoping for a pullback.
Have a good evening. I'll see you tomorrow.