The major indices are in positive territory and breadth is solid with around 4450 gainers to 2700 decliners. The number of new 12-month highs has dropped to around 250 and speculative trading continues to be slower with less than 20 stocks moving more than 10%.
It is bullish action but there is a feeling that many market players are waiting to see the reaction to the stock splits of Apple (AAPL) and Tesla (TSLA) , and the reweighting of the DJIA. All three events will go into effect at the open on Monday.
One development that is causing a little concern is that volatility indices such as (VXX) and (UVXY) are running higher despite the strength in the indices. Typically there is an inverse correlation between market strength and volatility. VIX is calculated by looking at out-of-the-money puts and calls and when it rises it is an indication that there is greater uncertainty. The only real conclusion that can be drawn from it at this point is that options are indicating an expectation of some bigger moves in the near term.
It is unlikely that the indices can continue to be driven solely by a few big caps for much longer but that doesn't mean that everything just reverses down. The greater likelihood is that there will be more rotational action when there finally is some consolidation or profit taking in names like Tesla and Apple.
My game plan remains pretty much the same. I'm trying to avoid the temptation to try to call a turn in the indices but I'm very aware of the potential that a turn could develop. I've raised some cash due to poor action in some individual stocks but there are still some good trades. This morning I took a couple plays in the lithium sector. Lithium Americas (LAC) and Livent (LTHM) . Another play that should benefit from the demand for batteries for electric vehicles is Flux Power Holdings (FLUX) .
There still is some good stock picking which keeps me optimistic but as I've warned a number of times lately, when the selling becomes more correlated it will become ugly very quickly for the indices.
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