Whatever was troubling the market at the open on Thursday morning has apparently been forgotten. Stocks are chugging along once again, with the S&P 500 on the verge of another all-time high. Breadth is pushing toward 4 to 1 positive, but the number of new 12-month highs is very sedate, with just 170 names.
Pockets of momentum are also a bit tame, but there are several dozen stocks moving more than 10%. The very severe rotation action continues, which is making trading quite challenging. Financials (XLF) have bounced back as bonds (TLT) have fallen, and yields have increased. The FATMAAN names are seeing only minor strength today, but growth stocks are bouncing well, and small-caps (IWM) are leading.
There has been some chatter that the action this week was caused by 'technical' trading rather than 'fundamental' considerations. This is an interesting distinction and probably not a valid one. All market action is a combination of technical and fundamental trading, and it is possible to determine to what degree one or the other is determining the action. If trading was based on fundamentals alone, then there would be far less random movement, but that is not how markets operate.
At least for now, the issues that lead to the big moves in bonds and the reaction in equities have been set aside, and there is now more focus again on stock picks. Large retailers like Macy's (M) , Gap (GPS) , and Nordstrom (JWN) are strong today, which reflects increased optimism again about the economy returning to normal, but the talk about COVID variants is not going away. Oil has also bounced back, and other reopening groups are doing well also.
The selling in small-caps this week has helped to push quite a few names to support levels and slowly accumulating some favored names. I think it will continue to be a bumpy ride as we head into earnings, but big banks will kick things off at the end of next week, and anticipation of some good reports will start to build. Most of the smaller stocks I favor will not report until August, so some patience will be required.
I'll be looking at some new buys into the close. The good news is that, outside of the indices, many stocks are not at all technically extended.