News about Moderna (MRNA) triggered stocks higher at the open, but there were some interesting divergences under the surface. Most notably, small caps rampaged higher with the Russell 2000 (IWM) gaining 3.72% and moving back over the 200-day simple moving average. That strength is reflected in breadth of around five gainers to each loser.
The laggards were the big cap technology and FAANG stocks. The Nasdaq 100 was up just 0.2% and spent must of the day in the red. Some funds flowed into banks -- as seen in the Nasdaq bank index BKX -- and in the industrials -- as seen with the Financial Select Sector SPDR Fund (XLF) -- which have been lagging. Value buyers are hoping that they may finally start to close the huge gap with growth names, but the danger is that gap between value and growth closes by growth dropping rather than value rising.
The strength in small caps now is likely partially due to the aggressive speculative trading that I have been yammering about so much lately. Individual traders are focused on the stocks that are moving and aren't paying any attention to the whining bears and their complaints about valuation and how stocks don't reflect reality. As the saying goes, stocks can stay irrational much longer than you can stay solvent.
At this point, we have to continue to watch for continued shifts in the character of the action. Will the Invesco (QQQ) continue to correct? Will "value" finally, find some momentum? Will the small-cap speculative trading continue? Will earnings season impact sentiment?
These are some interesting questions that we will see some answers to soon, so be prepared to adapt as conditions change.
Have a good evening. I'll see you tomorrow.
