You would not know by looking at the S&P 500 or DJIA, but it was an absolutely miserable week for a great many stocks in the market.
While some big-cap names such as Honeywell (HON) , Microsoft (MSFT) , and Home Depot (HD) moved steadily higher, hundreds of small-cap names broke down and struggled to hold support.
The trading action was some of the most inconsistent that I’ve seen in many years. It was as if there were two totally different markets operating at one time. One was a euphoric bull market, and the other was a bear market struggling to find support.
To a great degree, the action was disconnected from fundamentals. Earnings in the financial sector were generally good, but it is going to be interesting to see how some of the big-caps that have run up, deal with their reports. This is an ideal setup for some “sell the news” action in individual stocks.
The big issue going forward is how does this action resolves itself. The large-cap names and the S&P 500 are overbought and ready for some corrective action. If they do correct, then what happens to the stocks that are already in a bear market? Do they sink further, or do they benefit from some rotational action?
I suspect that it is going to be a very mixed bag, but there will be more focus on earnings, and that should drive some action in individual names.
Many traders are very frustrated this week. We had some of the best stock-picking in years to start the year, but for nearly two months now, picking stocks is not working very well. This action is driven primarily by large flows by big funds into large-cap names. Fundamentals and valuations are secondary to shifting money into certain sectors.
The good news is that the one great certainty about the market is that conditions will change. The timing is always the hard part.