Yesterday, four sectors were higher and seven were lower. The Consumer Discretionary (XLY) Sector surged, while Consumer Staples (XLP) and Communication Services (XLC) declined. There wasn’t mass selling, but the fact remains that buyers are all focused on the same names, although the top ten gainers are a rather eclectic bunch.

Under the Hood

Market breadth was once again ugly, with only 37% of the S&P 500 (SPX) stocks higher on the session.

Red Flag: New lows exceeded new highs. If it persists, it's an old-school signal.

Market Breadth	NYSE	NASDAQ
Advancers	1,192	1,831
Decliners	1,573	2,915
New Highs	72	156
New Lows	96	209
Up Volume	2.72 billion	5.25 billion
Down Volume	3.28 billion	5.04 billion

The factors board improved nicely from last week, but low volatility and quality continue to slog in the red. Small-caps caught a bid (more so for those in the S&P 600 (SPSM) rather than the Russell 2000 (RUT)).

After the close, Palantir (PLTR) delivered, and the shares edged up slightly. 

The company crushed estimates across the board with a strong quarter, which drove a significant increase in free cash flow.

The stock should have popped even more, but it's clear the overall rally needs a strong catalyst, as earnings beats have been commonplace.

For now, this rally remains limited to enough stocks to fit through the ‘eye of a needle,’ and all the others on the outside are looking in.

Today’s Session

According to Investec, there was only one other session where decliners outperformed advancers by a 2-to-1 margin (November 18, 2021). This was one day before it peaked, and then pulled back by 36%, over the next 13 months.

I do not see that happening this time because the dynamics of the AI story require huge demand for capital, speed, and infrastructure. All of which points to surging revenues and even higher profits.

That’s the case with Palantir (PLTR) and Spotify (SPOT) this morning,

They posted dream quarters, and both will open lower.  Seeing news on the stock market is not new, especially with these two names that are notorious for wild gyrations after posting results. 

There are scores of names we watch and would love to own for less.

The key is to see to what extent selling triggers additional selling.  Most of this is profit-taking. I don’t see savvy investors closing entire positions; instead, they are trimming and doubting some in the bank.

Keep your head out of the sand and on a swivel.

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