One of the major themes of the market in 2021 has been a disconnect between the indexes and the action in the majority of stocks. Although a large number of small-caps and secondary stocks hit a top in February, the indexes continued to run higher and covered up this action. The correction that occurred in September helped to close the gap between the indexes and the broader market, but the inconsistency flared up again on Monday as growth stocks jumped higher.
While some bears were hopeful that the bounce that started last Wednesday would fizzle out, there were plenty of folks worried enough about missing out that they were anxious to put some capital to work. They were particularly attracted to growth names like Coinbase (COIN) , CrowdStrike (CRWD) , and Affirm Holdings (AFRM) . These stocks have higher levels of volatility and tend to move faster than value names.
There was also some good trading action in bitcoin-mining plays and select SPACs that lately have had high levels of volatility. What lagged were groups such as cannabis, biotechnology, and thin, small-cap value plays. There wasn't much interest in bottom-fishing stocks that have been trailing.
The good news is that the market is back in an uptrend. Still, it is going to be a bumpy ride as there is rotation and consolidation as we move forward. Earnings news is going to cause more focus on individual stock picking, but certain themes are working much better than others. Traders are more interested in stocks with relative strength than they are in trying to pick values that have not been able to bounce.
Bitcoin remains in focus as a new futures ETF starts to trade today under the name Proshares Bitcoin Strategy (BITO) . There are many traders that are looking for a "sell the news" reaction to this news, but that may not be as simple or as easy as it sounds.
While the indexes are looking healthy, this remains a challenging market to trade. Good stock selection is the key. My Stock of the Week Nio, Inc. (NIO) , had a great day Monday, and some of the SPAC names like IonQ (IONQ) and Cipher Mining (CIFR) are doing well, but longer-term small-caps plays are looking dead, and certain sectors like cannabis and biotechnology are struggling.
I'll be looking to put more cash to work and will be watching for relative strength to trigger most of my buying.