The story of the market recently has been rotation, choppiness and inconsistency. While many pundits keep talking about the vulnerability of the indices, many traders are focused on trying to time bottoms in many speculative and growth stocks that have been under tremendous pressure since February.
The gulf in performance between the indices and many secondary stocks has been at historical levels and has been the source of tremendous frustration for many market participants because much of the financial media has been oblivious to the two-tiered action.
On Friday, small-caps and growth names bounced back again after a miserable Thursday, and early indications for here on Monday are upbeat as well. The problem is that the bounces in the lagging names have not been very persistent. Buyers hope that a turn is finally developing but are disappointed when money shifts back to the big-caps and indices and breadth turn negative.
Part of this action is due to negative seasonality, but market players will start to look ahead as peak vacation season on Wall Street comes to an end.
In addition, the Federal Reserve's annual Jackson Hole meeting is set for this coming Friday. The Fed has a history of making significant announcements at that time, and there will be much focus on whether the Delta variant of COVID has sufficient economic impact to keep tapering on hold. While the Delta variant continues to rage around the world, the economic repercussions have not been as severe as many have feared.
The big question for many traders this week is whether small-caps, growth stocks and speculative names can find some sustained momentum. If the broader market had been acting like these groups, everyone would be talking about bottoms, but there have been dozens of false starts recently and traders are growing weary of false hope. That actually may be a good thing as sentiment is now extremely negative and cannot drop much more.
We have a positive start to the week, but there have been too many strong starts and late fades recently. That dynamic needs to shift to attract better and more sustained speculative and momentum buying in secondary stocks.
I see quite a few interesting chart setups and will be focused on some new buys. Strength in Bitcoin is helping the speculative mood as well.