Risk appetite has returned to investors after a spike in the near-term market outlook. In this case, risk means a desire to own stocks, but not the higher-risk names that have powered this rally. This was the message yesterday, as Health Care (XLV), Financials (XLF), and Materials (XLB) led the charge.

Holding the Line

Advanced Micro Devices (AMD) was the top percentage gainer on the S&P 500 (SPX), but it didn’t have coattails, which is good (for the company) and bad (broad buyer fatigue in semis and Technology). Airlines took off (I couldn’t resist), and data center-centric names on the building side of the equation. Any combination works, as long as the S&P 500 holds above the 50-day moving average.

Rotation

The Russell 2000 ETF (IWM) has been the biggest underperformer of the year, but since the April 8^th low, it has only trailed the NASDAQ Composite by a narrow margin. However, the chart is only now giving off buy signals, straddling the 50-day mark, while the relative strength index (RSI) and money flow index (MFI) are at a solid risk-reward level.

Small-Cap Concentration

All the action has been in money-losing small-caps (see the chart above), and I believe that will remain the case in the near term.

Factors

Even in yesterday’s session, “low-volatility” small-caps were mired in the red, while momentum enjoyed the best performance.

Conversely, quality outperformed among large-cap names, while growth remained in the red. Several narratives are unfolding simultaneously.

High-Flyers Hit Air Pocket

Using the Ark Innovation ETF (ARKK) as a proxy for high-flying, unprofitable names, it's clear that selling is being triggered. ARKK has violated the 50-day moving average, and the 200-day moving average is a long way below. 

Meanwhile, it's buy-back season, and that will provide significant support for big blue-chip names.

Today’s Session

Selling begets selling, especially when large profits are at stake.

That’s the case for the NASDAQ Composite this morning. There were many names I wished we had, that have been coming in nicely. Have patience.

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