Toppy Action Hits Market as Index Rebalancing Provides Liquidity for Sellers

The trading action started slowly on Friday with some slightly disappointing inflation and consumer spending numbers. It wasn’t a big miss, but the data point to some stress and might be a precursor to more dramatic changes as tariffs start to flow through the system.

There was brief pressure, but as soon as the opening bell rang, buyers stepped up and ran over the hopeful bears once again. The action was quite frothy with over 1,000 stocks hitting new 12-month highs, but selling started to occur at midday and picked up steam until the final hour of trading.

Friday happens to be rebalancing day for the Russell indexes, so there was huge volume at the closing bell as shares were transferred to index funds. Nasdaq volume was most likely the highest of the year. Many stocks were jerked around as the closing price is key for the indexers.

This action has nothing to do with the fundamentals of technical conditions, so I will forego jumping to any conclusions. Typically, intraday reversals like that which occurred are a warning sign, and when we combine that with the possibility of the rebalancing being a "liquidity event" for institutional holdings, it does raise questions about a potential top.

Monday is the last day of the quarter, and there is likely to be window dressing, but then we head into the July 4 holiday, which does have a tendency toward negative seasonality. The potential for some stalling and a pullback at this juncture is fairly high, especially if the tariff and trade news is not as positive as hoped.

The market is at a key juncture, so additional caution is warranted.

Have a great weekend. I’ll see you on Monday.

At the time of publication, Rev Shark had no positions in any securities mentioned.