Stocks drifted lower on Tuesday, but there was little urgency to the selling and a few pockets of strength existed. Breadth was close to 2 to 1 negative, but there were more than 350 new 12-month highs to just 60 new 12-month lows.
Cryptocurrencies stabilized and are finding some buying interest here on Wednesday morning, but most of the speculative names that started correcting months ago are looking better than they have in a while. ARK Innovation ETF (ARKK) , which is the measuring stick of high-beta growth stocks, managed to push higher and is at its highest price since May 7.
The thing that is most notable about the action right now is that there isn't much energy. Part of this is due to the upcoming Memorial Day weekend, which kicks off typically slower summer trading. There is likely to be more summer-trading impact this year as people are no longer trapped at home due to COVID and are anxious to move away from their computer screens.
Another issue that likely will drive slower summer trading is a decline in liquidity. Many speculative small-caps have been feeling that for a while, and it recently hit cryptocurrencies quite hard as well. Some of the excess liquidity was flowing into value stocks and Dow Jones Industrial Average names while the names favored by aggressive individual traders suffered, but that rotational action is now cooling.
Another shift in the market is that inflationary concerns have cooled off. Bonds have rebounded to where they were in early May, and there has been some softening in commodity prices. That concern is no longer dominating the conversation.
Summer trading isn't all bad. It can be a good environment for stock pickers who are selective and wait for the right setups. However, the action is narrower, and momentum has a tendency to fizzle out faster. It is important to find the themes and sectors that are working and stay disciplined, but it is much better than the sort of rotational action that hit speculative stocks so hard over the last few months.
Indices are indicated slightly higher, and Bitcoin is looking frisky.
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