2 Major Shifts Have Changed the Character of This Market (original) (raw)

Good stock-picking is being rewarded again, and traders are regaining confidence.

The market has undergone a shift in character in recent weeks, and many individual stock traders are feeling more optimistic as we head into a holiday weekend.

There have been two major shifts. First, the fear of inflation has cooled off. Bonds have strengthened, and the market has started to embrace the Fed's message that inflation is a transitory concern that will cool off after the initial surge caused by the reopening of the economy. Strong retail numbers demonstrate that the reopening is in good shape, but the market is now less concerned that excessive growth will be the cause of longer-term issues.

The second major shift is that the rotation out of growth and speculative stocks and into value names has also cooled off. Starting in mid-February, the growth and speculative names that were leading started to correct. Indeed, many stocks corrected deep enough to fall into bear markets. Those bear markets appear to have ended in the last couple of weeks, and now we are seeing better relative strength in growth and speculative names while value stocks are undergoing mild corrective action.

Stock-picking is now much better for individual traders, and we even have a return of the meme plays -- Gamestop (GME) AMC (AMC) , etc. -- as the risk appetite increases. Also, it appears the cryptocurrencies have stabilized after some "crash" action. The surge in volatility wiped out some players that were using heavy margin, but dip-buying support has appeared over the last few days, and emotions have simmered.

Part of the shift in market character is due to the usual slowing that occurs during the summer months, and this year there is likely to be a surge in people less inclined to actively trade as the COVID crisis ends and they are able to partake in other activities. Trading was a great distraction for some folks during the crisis, but many of them are probably moving on, especially after they have had to struggle with the breakdowns in speculative stocks and cryptocurrencies.

My primary focus right now is back on stock-picking. Many names have already bounced back pretty well over the last couple of weeks, and we may need some rest, but there is a very clear shift in market character. Good stock-picking is being rewarded again, and traders are regaining some confidence.

We have a mixed start in the early going Thursday, but the important issue right now is not the indices but the action in individual stocks.

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