The market action has been undergoing a change in character over the last two days. The most notable shift has been a sharp rotation out of the stocks that have been leading since the lows in March. The FAANG names, biotechnology, technology, precious metals, and various work from home names have been the leaders while banks, industrials and other 'value' or 'defensive' plays have lagged.
Over the past two days, the banks and other groups have surged while the lagging stocks have come to the forefront and driven the DJIA sharply higher. While the DJIA has been running, the Nasdaq 100 ETF (QQQ) has been lagging to the greatest extent since the March low.
The pressure on the QQQ is continuing this morning as the debate over 'free speech' and social networks is heating up. President Trump stated that he will be issuing an Executive Order in response to Twitter's (TWTR) recent policies and that is causing some selling in the group.
The DJIA is higher again this morning but that is primarily due to one stock - Boeing (BA) . BA is restarting production of one of its aircrafts and that is helping the positive sentiment created by the reopening of the economy.
The hope of the bulls is that this rotation action will allow extended stocks to rest while the lagging names take a leadership role and continue to push the indices higher. Unfortunately the two groups of stocks -'growth' and 'value' -are not simple substitutions for each other. Value stocks never lead the market higher as growth stocks do. Value stocks may produce relative outperformance at times, but generally it is in poor markets when a more defensive posture is favored.
This market needs to see growth stocks reassert themselves if it is going to continue to trend higher like it has since the March lows. Value stocks can't take the place of groups like FAANGs and biotechnology. It is a mistake to believe that the price action will be similar.
The difficulty for market players is that this rotational action makes a muddle of the indices. The real movement is occurring in sectors and individual stocks, and there is a clear mix of winners and losers. This is not a market that can be simply navigated with the labels of 'bullish' and 'bearish'.
The market is at an important juncture here and we will see if the change in character continues to develop. I'll be primarily focused on protecting recent gains as I do not see many good setups in the stocks I favor right now. Banks and industrials just aren't the sort of names that I trade very often.