Market players were bracing for some corrective action this week, but the market did what it often does and didn't conform to the conventional wisdom. Rather than pull back in an across-the-board correction, there was rotation back into bigger-cap and FATMAAN names. The Nasdaq outperformed while the Russell 2000 ETF (IWM) lagged.
What was most notable about the action this week was that the very strong speculative stock-picking continued. Despite all the concerns about frothy activity, high valuations, and extended technical conditions, aggressive traders continued to pursue various stocks in sectors such as SPACS, solar energy, biotechnology, electric vehicles, etc.
Indeed, the concerns about the action being overheated are becoming quite overheated, but the rotational action helped keep the momentum going. Weak opens are attracting dip buyers, and the list of stocks moving more than 10% per day is not showing signs of slowing.
The dynamic in the week ahead will change a bit as earnings season picks up. Most of the reports in the next two weeks are from larger-cap names, so there is a good chance of more rotational action as the news hits. The small-caps won't start to report for another three weeks or so, which means that speculative action can easily continue.
This is an unusually robust trading environment, and it is easy to think that it is too late to participate. However, the key is to manage risk and not let all the top-calling experts scare you away. This market can continue to act irrationally far longer than seems rational.
Have a great weekend. I'll see you on Monday.