It was an eventful week as cryptocurrencies crashed, the indices bounced back strongly from some panic-selling and the laggard growth and speculative small-caps showed relative strength. Indeed, there was transitional action that raises the question of where this market is headed next.
Until recently, cryptocurrencies have been the safe haven for some of the speculative money that has given up on equities. Small speculative traders using margin were smashed by Elon Musk slamming bitcoin for being an energy hog, China making it clear that it won't be used for transactions, and news that the IRS may start to aggressively go after folks that aren't paying taxes on gains. The use of margin helped to magnify the selling pressure.
This chaos in cryptos spilled over to equities to a certain degree, but stocks did a fair job of shrugging off the issues. The Russell 2000 ETF (IWM) was the best performing of all the indices on Friday while cryptos struggled and all the FATMAAN names finished in negative territory.
One of the big questions on the minds of traders in recent weeks was whether the stocks that have been in a bear market for months could manage to bounce while larger-caps and the indices underwent corrective action. The answer to that question appears to be yes. The laggards did well this week, while the leaders did poorly.
This environment is helping to create more intriguing setups for next week, and we will see how that develops. Many traders were relieved this week to see some of their favorites do better, but this market has had a number of mood swings lately, and we will have to watch for another one.
Have a great weekend. I'll see you on Monday.