The market celebrated a dovish Jerome Powell on Friday and kept the recent uptrend in good shape. There is a growing belief that the Fed will start to taper off its bond-buying as early as its September meeting, but concerns about inflation have declined as Powell continues to promote his belief that it is transitory.
The indices hit new all-time highs once again on Friday, and that is causing talk about how extended the market has become and has caused the usual market-timing bears to declare that disaster awaits.
While the indices are in lofty territory, the real story of this market continues to be the rotational action. All year long, there has been a major disconnect between the indices and the action under the surface. Speculative small-caps, growth stocks, and many sectors like biotechnology and gambling topped out in February and fell into a deep bear market. The folks in the business media have largely ignored this story as they celebrated the indices that kept running higher on poor breadth.
Over the last seven days or so, there has been a major turn in the small stocks and growth names that have been struggling for months. It looks like a bottom has formed and that the bear market in these names has come to an end. Speculative interest has picked up, cryptocurrencies have been trading better, growth names like those held by ARK Innovation ETF (ARKK) have bounced and are back over the 50-day simple moving average.
This stealth bear market has been vicious but what has made it worse is that the media and traditional Wall Street didn't even recognize it. They are still focused on just the indices as trading action for stock-pickers has really started to improve. During the last few months, there have been several false rallies by the growth and speculative names, but the current one has had better momentum, and there is now some decent technical action that will provide a framework for better trade management.
The biggest concern of many market participants is that the indices and big-caps are due for some corrective action and will weigh on the broader market. Can small-caps continue to act well when the media is focused on weak action in the indices? There have been some periods this year when small-caps and growth names have seen positive rotation, but there is no guarantee that it will persist.
What is favorable right now is that the speculative mood is much better. Traders are focused again on stocks like Support.com (SPRT) and Vinco Ventures (BBIG) , and are beating the bushes looking for the next play. This leads to a focus on stock picking, and that helps small-caps.
We have a mixed open on the way but there looks to be some good pockets of speculative action.