For over a week, the battle between overbought technical conditions and strong momentum has been raging. The momentum bulls have been winning the battle, but there are some signs of fatigue. Even most bulls would admit that it would be healthy for the indexes to rest at this point. However, quite often, what is most obvious doesn't easily occur.
What adds complexity to the market environment is that it has been primarily a stock-picking market rather than an index-driven market. A few big-caps like Tesla (TSLA) have helped to feed the narrative of a wildly extended market, but many individual stocks are not in bad shape technically. The Russell 2000 ETF (IWM) broke out of a 10-month long base just last week and looks quite different technically than the S&P 500 or Nasdaq, which have had a slew of new highs in the last few months.
I've been preaching that the key to navigating this market is to focus on individual stocks and not to become too caught up in trying to predict the indexes. The longer I trade, the less I worry about the indexes, and the more I focus on individual stocks. There is almost always something that is offering good opportunities.
Good examples of how the indexes can mislead are sectors such as cannabis, bitcoin mining, semiconductors, and select SPACs, which have been offering exceptional opportunities lately. The indexes have no real impact on what is going on with those groups and will mislead you if you allow that.
The current run has been fast and furious, and there are many stocks that are extended. It is important to be zealous about protecting gains and about working to not give back too much when a turn does occur. However, anticipatory bearishness has a very high opportunity cost, and those that have been fighting this momentum have paid a very heavy price.
We have a mixed start Tuesday morning, but some good earnings news is moving a few names such as Roblox (RBLX) . There are many small-caps reporting this week, which is going to produce some volatility.
Stay focused on your individual positions and let them determine your overall market exposure. Trying to time the indexes is not a productive approach to this market.