Although the major indexes finished the day with minor gains, the action was much worse than it looked. After a strong start, stocks trended down all afternoon, but the glaring weakness was poor breadth. Even with the S&P 500 closing with a small gain, there were only 2,400 gainers to 5,700 decliners.
The primary weakness was in small-cap and some speculative groups like biotechnology, medical technology, and semiconductors. Breadth for the Russell 2000 exchange-traded fund was around 300 gainers to 1.600 decliners, which is horrendous action.
The indexes failed to reflect this abysmal action, however, because few big-cap technology names offset the poor action in thousands of smaller stocks. A new analyst at Goldman Sachs recommended buying Apple (AAPL) shares for the first time in almost six years; the recommendation was premised on Apple being historically cheap and relatively weak vs. other major technology names. That fails to recognize overall market conditions, but it sucked in buyers that were worried about missing the bounce that took place the last couple of days.
This is not healthy market action, but what happens next will be determined by what Fed Chair Jerome Powell says Tuesday, when he testifies before Congress. After a big jump on Friday, bonds reversed down Monday, so there still is quite a bit of nervousness about the level of Fed hawkishness.
One of the things that helped the market in January was a high level of shorting and cash. Those conditions are not the same at this time, and it will be much more challenging to create squeezes, especially when there is the potential for unfriendly economic news, such as job openings on Wednesday.
This is not a market for old stock pickers, but there are some interesting opportunities slowly developing.
Have a good evening. I'll see you tomorrow.
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