Intriguing Leadership Change Keeps Market Uptrend Running
This group of small-caps is now leading, while the Magnificent Seven must deal with technical resistance.
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Since the start of the fourth quarter on October 1, there has been an increase in stock market volatility. There was the biggest one-day drop in months, followed by the biggest bounce in months.
This increased volatility is triggering a shift in market leadership. Most notably, the Russell 2000 (IWM) is sitting at all-time highs while the Magnificent Seven (MAGS) and S&P 500 (SPY) have stalled and face technical resistance at recent highs.
The small-cap leadership has been marked by pockets of very strong momentum. As I’ve reported, the number of secondary stocks jumping more than 10% in one trading session has increased sharply. Over the last week or so, there has been an average of 200 Nasdaq stocks hitting new highs, while only about 90 NYSE stocks are hitting new highs.
The most intriguing aspect of the list of stocks making new highs is that very few are technology names. Precious metals, mining, and alternative energy have been the key leaders.
This rotational action is driven primarily by concerns that many of the AI-related names have become too expensive and extended. Ironically, the money coming out of some of the Mag 7 names has gone into speculative small stocks that are even more expensive and extended than the big-cap technology leaders.
Another interesting aspect of this shifting leadership is that market players are quick to shrug off a growing trade war with China. There have been a couple of sharp drops on trade news, but buyers jumped in and quickly had the market back up.
So far, earnings reports have been a boost to the market as well. Reports in the financial sector are strong, and on Thursday morning, Taiwan Semiconductor (TSM) is hitting new highs following its results. That is boosting the big-cap AI and semiconductor stocks and producing a positive open.
There are quite a few moving parts to this market right now, but the key issue is that there is a good supply of names with positive price action. That bodes well for traders as we move into a seasonally positive time of the year.
At the time of publication, Rev Shark had no positions in an securities mentioned.
