Poor Action in the Magnificent Seven Is Fueling Speculative Trading
Rotation has picked up as the stock market sees a very bullish trend.
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Poor action in the Magnificent Seven is helping to fuel a positive trend in the rest of the market. After the tariff scare came to an abrupt end, rotation into the broad market has picked up. For the second day in a row, the Russell 2000 IWM led the market higher on good breadth.
The Russell 2000 gained more than 1%, while the Magnificent Seven dropped 1.4%. The equal-weight indices are outperforming the capitalization-weighted indices, which is a nice reversal from a narrow big-cap market.
This is a very bullish action for the broad market, but the big question is whether it can be sustained. The Russell 2000 is running up against overhead resistance at the 50-day simple moving average, but there isn’t any major news flow that is causing a problem right now.
There is the Amazon AMZN earnings report on Thursday night and then the January jobs report on Friday morning, but the most likely issue to cause problems is the imposition of tariffs on Europe. That does not appear to be happening right away.
Conditions are good for this trend to continue, especially since sentiment for smaller stocks seems greatly improved. There is more focus on finding good values and good technical setups.
The biggest positive we have right now is that poor action in the Magnificent Seven does not have any great impact on other areas of the market, and that supports stronger speculative action.
Have a good evening. I’ll see you tomorrow.
At the time of publication, DePorre had no positions in any securities mentioned.
