To Effectively Navigate This Market Stay Focused on Small Traders

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The indices are quiet today with minor changes and a positive bias. Breadth is solid with about 4200 gainers to 3200 decliners. The number of stocks moving up 10% or more was quite limited this morning but is picking up as the day progresses. There are over 600 names hitting new 12-month highs, which is about half of what we saw earlier this week.

The action on Thursday was quite chaotic under the surface as some very aggressive profit-taking hit the cannabis sector and some other recent, small-cap winners. That caused some consternation among the small traders that have been chasing strength, but they are resetting today and looking hard for a new crop of leaders.

Cannabis names are bouncing, but there aren’t too many strong themes right now. There are some good bounces in SPAC names like QuantumScape (QS) , Fisker (FSR) , and Foley Trasimene Acquisition (BFT) , and bitcoin plays are seeing continued momentum as well. The stock picking is gaining traction again very fast, and that is a good sign.

Nothing has been more important recently than the power of stock picking. It is fueled by a high level of liquidity, and it is hard to imagine any real corrective action gaining momentum as long as there is so much focus on stock picking. The likelihood is that we will see correction action in the form of rotations from one group to another. We have already had a very big correction in FATMAAN names as money rotated into small-cap stock picking. Yesterday cannabis names were corrected by virtual of rotation.

Big picture bears seem to miss this stock-picking action. It is extremely powerful and is driven by both positive sentiment and a high level of liquidity. The likelihood is that it continues longer than seems reasonable. If you want to navigate this market effectively, then stay focused on what small traders are doing.

I’ll be looking for some buys into the close, but I am not doing a whole lot right now. Don’t forget that the exchanges are closed on Monday for President’s Day.