We have mixed action to start the week, with breadth running about 2 to 1 negative and the indices showing some minor losses. The dip buyers made an early appearance but didn't stick around for long, and now stocks are drifting on lighter volume. Economic weakness in China is hurting oil and commodities, but the primary development is that the aggressive chasing that occurred over the last two weeks has cooled off.
The primary issue for traders is whether this is just a healthy pause that will set up the next leg higher or a stalling action that will produce a rollover. In early June, there was trading range action after a big bounce off the lows that stayed sticky to the upside for about two weeks, but it ultimately failed and led to lower lows. We will have to wait for further price development before we see helpful information.
I've been working on repositioning into this strength. I've cut back positions that have good moves and are extended, but I'm happy to add to names that are offering good entry. Currently, there are not too many of those.
Beyond Air (XAIR) and Aehr Test Systems (AEHR) were my last two stocks of the week, and both have made strong moves and are becoming extended, but they are a good illustration of how FOMO is causing some chasing of small caps that were left for dead not that long ago.
This week's Stock of the Week is LianBio (LIAN) which is licensing US-developed drugs and will seek approval in China. It is pulling back a little this morning, probably due to weakness in China in general.
There continue to be some pockets of momentum, but it is slower. As I mentioned this morning, we are at peak vacation time on Wall Street. Volume at the end of August is often some of the lightest of the year.