The V-shaped bounce that started after the sharp correction on Monday is looking to continue for the third day. Whatever the worry was that resulted in the abrupt drop in the senior indices seems to have been forgotten, but the action did help to clear the air for small-caps and growth names that have been leading the bounce over the last two days.
Worries about the Delta variant of COVID and Fed talk about eventually tapering provide good excuses for the big picture bears, however, the market doesn't seem much interested in the pessimist narratives right now. There are a number of stories about how economists don't see the Delta variant as having any negative economic impact, although the number of cases is growing. Weekly unemployment claims will be announced Thursday morning and are expected to be at new post-pandemic lows.
Earnings continue to roll out, and so far, the response has been upbeat, with stocks such as Chipotle Mexican Grill (CMG) and Coca-Cola (KO) reacting well to the news.
What is most notable about the action the last few days is that it has shifted away from the vicious rotational action and poor breadth and back to stock-picking and a greater focus on individual stocks. Part of this is due to earnings season, but a big part of it is that the sharp drop on Monday finally put an end to the uptrend in big-caps on very narrow breadth.
Small-caps and growth names found some clear technical support and have had a vigorous bounce but are now becoming a little extended. That often is the signal for a V-shaped bounce to continue even higher and cause consternation for underinvested bulls. The fear of missing out is often a potent force in a market like this.
We have another positive open shaping up. On Wednesday stocks gained strength all day and closed well, which is a promising setup for further momentum.
The pockets of strong momentum have increased quite a bit, and traders are hard at work looking for speculative action. Sometimes that can be a contrary indicator, but there are still so many stocks that are recovering from deep corrections that it is early in the game.
I'll be focused on finding some new buys today and will give my positions a little more room to develop fully.
Chipotle and Coca-Cola are holdings in TheStreet's Trifecta Stocks portfolio. Click here to learn more about this portfolio, trading ideas and market commentary product.
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