Momentum Monday – The Rotations Continue

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The large-cap indexes continue to grind higher and make new all-time highs almost on a daily basis. SPY, QQQ, DIA have been so strong that many active investors wish they were passive indexers since mid-February. The small-cap ETF – Russell 2000, is lagging a bit but also acting constructively – consolidating in a tight range near 225 and setting up for a potential breakout. And yet, there’s something weird going on beneath the surface – there are very few high-quality long setups among high-beta stocks; most breakouts in that space have found very little follow through and some are under clear distribution. Is this type of price action sustainable? Yes and no. No one can really say how long it’ll last but the truth is that is not going to take much to scare people out and cause a quick 4-5% pullback. If such a pullback happens, it will be welcomed as a buying opportunity by many so it might not happen at all. As the saying goes, the markets will move in the direction that will surprise the biggest number of market participants.

The new earrings season is here. Over the next few weeks, we will see thousands of earnings reports. Most won’t matter but some will start big new trends. As a rule of thumb, markets tend to be choppy and range-bound during the bulk of earnings season, so I expect to see something of that fashion.

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