The easiest mistake to make in this market is to overact to some of the unusual activity that is occurring. Most notably, breadth has been quite weak recently and the logical assumption is that it is a warning sign that some corrective action lies ahead. The logic is that when the market is this narrow it is unsustainable and unhealthy, and will eventually trap those that keep chasing names like Apple (AAPL) that are technically extended by any measure.
What is helping the market is that there still is interest in finding stocks that might be deemed to be value plays. Not everything in the market is grossly extended like some of the big cap names. The problem is that when big-cap names correct the money usually doesn't just rotate. It moves to the sidelines and we start seeing broader and more correlated selling.
Although the indices are holding up very well there is some rotational corrections taking place. Biotechnology (IBB) , for example, has been leader off the March lows but it has now pulled back to levels seen over two months ago. Many of these stocks are not expensive given their prospects and I have a long shopping list.
At the top of my list for additions are Xeris Pharmaceuticals (XERS) , Myovant Sciences (MYOV) , Personalis (PSNL) , Ocular (OCUL) , BioDelivery Sciences (BDSI) , and Horizon Therapeutics (HZNP) . There are a number of other names in the sector that are of interest but these are the main names I am looking to build on further weakness.
This is a very odd mix of action right now and the indices are doing a poor job of reflecting what is really going on. I'm very reluctant to chase momentum now but I am looking for entries on pullbacks.