The S&P 500 hit another all-time high on Monday, but trading was lackluster and rotational action is presenting some challenges. Breadth was negative to start the day but strengthened steadily and finished at around 4,500 gainers to 3,400 decliners. Banks were leaders as market participants anticipate positive reports from Goldman Sachs (GS) and JPMorgan Chase (JPM) Tuesday morning.
The challenge of this market for traders is that while the indices continue to trend steadily higher, there is very inconsistent and choppy action in many sectors. A very large percentage of individual stocks are not even close to their highs and are uncorrelated with the indices. Currently, about 39% of all stocks are below their 200-day simple moving average, which is often an indication of bear market action.
Certain sectors such as biotechnology and even meme stocks are struggling while the business media celebrates new all-time highs for the indices. Meme favorites GameStop (GME) and AMC (AMC) have lost momentum and are trying to hold some key support areas.
The big question now is whether the start of the second-quarter earnings season will present a catalyst for a shift in the market's character. The banks that are reporting this week aren't always good indicators, but they will give us some insight into the possibility of "sell the news" responses to what should be some very good reports.
There are some pockets of momentum in this market, but in view of the strength in the S&P 500 it is very limited. The market was much more frothy back in February when the indices were much lower. Speculative stocks have never recovered nearly as well as the indices, and that is making it tough on stock-pickers and traders.
This is a challenging market for traders due to the lack of sustained momentum in individual stocks. The indices make it even more difficult because they cover up what is really going on under the surface. The market is not nearly as strong as the indices.