The market held up well and even rallied into the close yesterday. Still, there was a defensive tone, which is why Utilities (XLU) and Consumer Staples (XLP) rose to the top.

“Large cap” factors received the most attention, including low volatility.

Breadth Remains Sloppy

Enough large green boxes and squares finished in green, led by Apple (AAPL), but Health Care (XLV) (mostly Eli Lilly and Co. (LLY)) and Financials (XLF) lagged.

The problem with Utilities and Consumer Staples leading the way is that their weights are infinitesimal.  Moreover, the moves into these sectors have largely been short-lived.

Decliners led advancers, particularly on the NASDAQ Composite.

Market Breadth	NYSE	NASDAQ
Advancers	1,249	1,832
Decliners	1,517	2,651
New Highs	110	155
New Lows	46	126
Up Volume	2.09 billion	4.40 billion
Down Volume	2.12 billion	3.59 billion

Land Mines

This has been a tough earnings season – reactions have been brutal. Two days ago, we had the number one percentage gainer (Arista Networks (ANET)), but yesterday and today, we had a couple of disasters.

These are unavoidable, and the real test now is what to hold and where to bite the bullet. The latter is critical because you want to live to fight another day.

Opportunities are created when emotions run high, but it's always best to allow the dust to settle.

 

The overall resolve of the market is impressive, and upside bias can eventually spark the next big leg higher.

Today’s Session

The market remains in a holding pattern with the bias to the upside, and at this point, it feels like autopilot.  The plane is humming along, but each day more “winners” are parachuting out, and most are landing hard.

This sort of feast or famine points to stocks being priced for near-term perfection and investors sitting on profits looking for excuses to bail (see Trade Desk (TTD)).

But the most vulnerable names are those that were already laggards.

Nobody is stepping up to defend them (see Sweet Green (SG)), which brings me to the notion of bottom fishing and seeking value. Right now, it’s a hit or miss proposition, but mostly the latter.

For the most part, the market has sniffed out weakness and vulnerability.  Holding these names means more near-term angst.  

Moreover, almost all the big decliners have one thing in common: they need new management.

Meanwhile, as the big winner continues to move higher, the rally keeps thinning out.  NVIDIA (NVDA) has the highest PE ratio in the history of the biggest stocks in any given year.

Only 53% of the S&P 500 are changing hands above the 50-day moving average.  In January 2024, it was over 90%.

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