Stocks are building this morning on Tuesday's energetic rebound. Some much needed corrective action in the indices and big-caps was sizable and very quick, but it helped to clear the air for many secondary stocks that have been correcting since February. The tip-off was the relative strength on Monday in growth, small-cap, and speculative stocks that have been struggling with downtrends. The disconnect between the indices and the broad market and the bulk of the market was unsustainable, and the action of the last few days helped that situation.
The challenge now is navigating what lies ahead. Key earnings reports will be rolling out for the next several weeks, and that will become the primary focus now. Interest rates, inflation, growth, and the COVID variant will be macro issues that grab the headlines, but traders will be focusing on the reaction of individual stocks to earnings news and sympathy moves in various stocks.
The biggest positive right now is that many stocks and sectors have already undergone very deep corrections. Over 60% of stocks are under their 50-day SMA, and 35% are under the 200-day SMA. Many of these stocks are starting to find support, and technical conditions are improving.
Many market participants were worried that a correction in the DJIA and some of the big-cap names would drive small-caps and growth stocks even lower, but, on the contrary, the dips there resulted in some rotation and finally gave us some better support.
The action appears to be shifting back to stock picking and away from market timing again. The inflation and growth concerns are being set aside - at least temporarily - while traders focus more on the merits of individual stocks.
I'll be looking for some new buys today and will start anticipating some positive earnings reports.
