Momentum Monday – Bifurcated Market

MarketSmith powers the charts in this video

April CPI came as anticipated – 4.9% year over year and 0.4% month over month. Inflation is slowly receding. This is exactly what the market has been expecting and pricing so far in 2023. As a result, tech stocks have been outperforming the rest of the sectors year-to-date. Large caps have been outperforming small caps. 

There is something for everyone in this market. There are solid bearish and bullish arguments and each can easily play out. Our job is to remain open-minded and be ready to adjust to any major change in the tape. Last week was a microcosm of the tape year-to-date. There were some great opportunities on the long side – AMD, GOOGL, AMZN, SE, etc. There were some great opportunities on the short side as well – almost anything commodity-related was smoked, including Bitcoin if it can be considered a digital commodity. 

The biggest current narrative is that a few mega-cap tech stocks have been propping the indexes higher while the majority of stocks have been under pressure in the past couple of months. It has been a thin market with more stocks making new lows than new highs. Typically such bearish divergences lead to a correction for the entire market but they are sometimes resolved through sector rotation. I wouldn’t exclude either scenario. 

The main bullish argument is that despite declining earnings, the banking crisis, and debt ceiling rhetoric, the large-cap indexes are holding remarkably well. The Nasdaq Composite Index which consists of over 3000 stocks is trading above its 20, 50, and 200-day moving averages. The dips in SPY to its 50-day moving average are still welcomed as buying opportunities. 

Solar stock woke up on Friday. FSLR closed strong. The big question is if it can add to its gains. The follow-throughs to the upside have been limited as of late. 

I don’t believe this is a tape to be overly aggressive. I continue to try with small positions with mixed results. The tape is neither bearish or bullish. It’s a market of stocks environment where equity selection and being nimble matters. 

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