Major earnings reports from names such as Apple (AAPL) , Microsoft (MSFT) , Google (GOOGL) and Advanced Micro Devices (AMD) helped to trigger some rotational action on Wednesday that slowed down the DJIA, but benefited growth stocks and the Russell 2000 ETF (IWM) .
Thursday morning the market is assessing more reports from Facebook (FB) , PayPal (PYPL) , and Qualcomm (QCOM) and is also digesting the latest policy announcement from the Federal Reserve, which repeats the view that recent inflationary pressures are "transitory."
The primary issue for market participants is whether growth stocks and speculative small-caps can build on Wednesday's solid action. It has been very rough going since February for small-caps and sectors like biotechnology, but the pressure lifted Wednesday, and there was a collective sigh of relief among traders.
The great dilemma of this market right now is that the senior indices and many big-caps are technically extended and prone to "sell the news" reactions while many small-caps and growth names have already undergone deep corrections, are coming off support, and are heading into earnings reports.
Some market participants wonder if small-caps can exhibit sustained relative strength while the leading big-caps start to struggle. The answer on Wednesday was yes, but when small-caps bounced last week, they fizzled out in miserable fashion a few days later.
There were some very good pockets of momentum on Wednesday, and many of the charts in the secondary stocks are developing well, but the recent rotational action has been quite abrupt, and we will have to keep an eye on it.
Facebook cut its growth forecasts and is down on the news. We'll see if that spills over to other FATMAAN names, but badly beaten-up China names are bouncing, and traders are looking for a continuation of Wednesday's strong trading action.