Several times in the past few weeks the Nasdaq has faltered but has quickly found support and hit new highs. That occurred again yesterday despite negative breadth and some recent rotational action.
Market strategies are quick to point out how much of the index strength has been the function of the big-cap FATMAAN names. Yesterday, Amazon (AMZN) and Apple (AAPL) did the heavy lifting that offset pervasive weakness in small caps.
When the big-cap technology names do undergo some profit taking the money is rotating into other sectors that are viewed as being relative bargains. Not everything in this market is nearly as overvalued as the big Nasdaq 100 stocks. There is plenty of liquidity out there that is happy to jump in on pullbacks in secondary names that still look attractive technically and fundamentally.
If you are looking for some corrective action to gain momentum, then you will have to wait for broader selling. A top will come when the Nasdaq 100 ETF (QQQ) rolls over and breadth is 3 to 1 negative or better. If that doesn't happen then look for a rotational correct to occur with various sectors being impacted at different times. That will make it very hard for market timers trying to short the indices.
In addition to the big-cap technology strength the other key to this market remains the robust stock picking. Market participants are finding a new batch of winners on a daily basis. That keeps sentiment positive, squeezes the bears, and creates fear of missing out.
The key to navigating this market is to stay focused on your individual stocks. The easiest mistake to make is to focus on timing the indices and then letting that drive the way you handle individual stocks that are technically healthy. The fear of an overall market correction can cause very poor decision making if you allow your emotions to come into play.
This morning we have some mild strength with Target (TGT) gapping up and acquisition of Momenta Pharmaceuticals (MNTA) by Johnson & Johnson (JNJ) . Concerns about Covid-19 continue to have little impact and predictions of some tough economic challenges are having no impact.
Stay focused on price action and stock picking. When those things shift, then it will be time to play defense and raise cash.