With earnings reports before the open from Disney (DIS) , General Motors (DIS) , Eli Lilly (LLY) and several others, the vast majority of S&P 500 companies have now reported. There are still a slew of small-cap stocks that have yet to report -- and that helps to change the nature of the market action to some degree.
Although it is an overused phrase, the market will start to transition more to a stock pickers market at this juncture. That is due to the fact there are more small-cap reports rolling in now, which is making for big moves -- like Zendesk (ZEN) , Paycom Software (PAYC) and Snapchat (SNAP) .
These small-cap names tend to offer more interesting trading action than the well-known big-cap names that are covered by dozens of analysts and the business media. The small-caps are less efficiently priced and often offer the potential for stronger momentum and more volatility.
Another reason there will likely be more focus on individual stock picking is because it is becoming increasing difficult to find anything that isn't already technically extended. The market has moved in highly correlated fashion both up and down over the past few months, but to outperform from here will likely require more focus on stock picking and less on overall market direction. A stock like Apple (AAPL) may continue to run, but it's a much tougher trade at this point than some of the small stocks with solid reports.
When markets correct, they tend to do it in a highly correlated way, without much regard for the merits of individual stocks. That tends to be the case also when a turn takes place and the trend shifts back up, as well. The way to navigate that sort of action is to play overall market direction and put cash to work in indices rather than to be highly selective with individual stock picks.
Eventually, the focus returns to stock picking. That is especially so when the indices become extended, but market players are still underinvested and are anxious to put money to work. They may not want to chase the S&P 500 this morning, but they are willing to chase a Zendesk or Paycom that have good reports.
Overall, the market is at the same place it has been for a while. It is technically extended, but momentum is very strong and there is very tenacious support. The bears can't generate any downside movement for any length of time.
The indices have rallied in the last hour of trading for 10 straight days now. Watch for that dynamic to change and more focus on individual stock picking.