The market was able to shake off a weak reaction to earnings from Facebook (FB) and PayPal (PYPL) on Thursday, but it is faced with more poor news here on Friday morning from Amazon (AMZN) and Pinterest (PINS) .
The primary questions that market participants have been grappling with this week are whether the extended big-cap names would see a sell-the-news reaction and whether that would help to trigger a rotation into small-caps and growth stocks that already have had a deep correction and are finding some support.
There has been some rotation action this week but it has not persisted as skittish traders have been inclined to sell quickly into strength. There just isn't enough confidence out there to chase momentum in the secondary stocks that have been struggling since February.
Stocks are gapping down this morning on earnings news, and it did not help that the massively hyped Robinhood (HOOD) initial public offering trades so poorly or that cryptocurrencies have been so choppy after a big jump on Monday. Those developments have an impact on the speculative mood and are part of the reason that secondary stocks are struggling to gain better momentum.
We will see today if some of the money coming out of stocks such as Facebook and Amazon starts to rotate into other areas of the market. Small-cap earnings season starts next week and there will be increased risk and volatility in many names.
This market needs corrective action in the indices and some big-caps so that it can develop a foundation for another leg higher. The big question is whether everything will be dragged down together or whether there will be some tradable rotation while it occurs.