The market has recently gone through a corrective cycle that has been unique because of the disparity between big-caps and indexes on the one hand, and growth stocks and small-caps on the other hand.
Many of the secondary stocks topped out back in February. There was a failed breakout in the Russell 2000 ETF (IWM) in November, which triggered very ugly action over the last month. Big-caps caught up with the small-caps to a limited extent in the last couple of weeks, but the disparity between the indexes and the average stock is still extreme.
One of the most interesting aspects of market cycles from a trading standpoint is that there always is a shift from very correlated and broad selling that is mostly driven by macro concerns, to much more active individual stock picking once things start to bottom. I've been through these cycles hundreds of times over the years, and it is always fascinating how fundamentals and valuations don't matter at all when stocks are selling off, but then the stock pickers show up, and the best stocks are rewarded again.
The action we are seeing so far today is classic stock picking. Breadth is about 5 to 3 positive, but traders are looking hard and trying to find stocks that have been mistreated recently without any real justification. Traders often are fearful that a stock is selling off because of some change in fundamentals, but that wasn't the case for many stocks recently.
Typically the end of the year is one of the best times for stock picking, so we'll see what happens over the next three weeks. Many stocks have already made big moves and need some rest, but the action today has made me more optimistic about the stock-picking that lies ahead.