Monday's red-hot small-cap momentum suddenly cooled off Tuesday morning. Although the senior indexes are in the green, breadth has slowed to 3,200-4,650 negative, and the Russell 2000 ETF (IWM) is down slightly but recovering.
Abrupt shifts in small-cap momentum are common. They tend to be pushed around to a greater degree by small-caps, and when rotation hits, they tend to sink faster because they trade thinner.
The good news is that this action probably does not negate Monday's technical strength. I am looking for many of my favorite names to quickly regroup and make another push. That doesn't make the lack of bids in the near term more comfortable but this looks like just a temporary reset and not a failed breakout.
Currently, there are only about two dozen names moving more than 10% and very little at intraday highs. I'm not doing too much this morning so far. Crypto miner Hut 8 Mining Corp. (HUT) continues to act well (see Ed Ponsi's write-up on HUT), and The Beauty Health Company (SKIN) , which reports earnings next week, is trying to break out. The Glimpse Group (VRAR) is a thin trader but is getting buzz as a metaverse play.
I'll be looking at some of the pullbacks this afternoon and may do some additional buying. My thesis is that the rotation into small-caps just started and will continue, albeit in a choppy manner.
Please note that due to factors including low market capitalization and/or insufficient public float, we consider VRAR to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.