As Speculative Action Ends, I'm Eyeing Beaten Down Big Caps

After a strong day of speculative action on Monday, we're seeing almost no follow-through on Tuesday. 

On Monday, a couple of hundred smaller stocks saw gains of 10% or more. Thirty minutes into trading on Tuesday, the list is only 16 names long. Nasdaq 100  (QQQ)  breadth is even, and the Russell 2000 is trading down 0.8%.

There is some rotational action into big-cap names like General Motors  (GM)  and Coca-Cola  (KO) , which put up solid earnings numbers, and that bodes well for some of the lagging names that have solid fundamentals and lower valuations.

To navigate this market effectively, you need to be very focused on themes and rotational action. There has been good small-cap rotation and themes like precious metals, but when they become too hot, then there is some abrupt rotation into large caps and safer names.

The strong speculative interest isn’t going to disappear quickly or easily. There will be days like today when the chasers relent, and that will scare out some folks, but aggressive traders are going to take advantage of the pullbacks, and that will set up another burst of froth. I expect to see this trend continue through the fourth quarter, driven by seasonality and the Fed's interest rate cuts.

Days like today should be used for preparation. I’m nailing down upcoming earnings dates for my holdings and determining if I want to decrease or increase position sizes. The main goal is to have a high level of flexibility so I can take advantage of volatility.

I’ve been focusing more on beaten-down big caps like Dutch Bros  (BROS) , which has made a good move since I mentioned it on October 9. The reaction to  (GM)  and  (KO)  is an indication that the strategy is working.

There is poor action so far on Tuesday, so it’s a good time to ponder strategy and start thinking about how to position yourself to take advantage of ongoing volatility.

At the time of publication, DePorre was long BROS.