The wall of worry is real. The non-stop news coverage about the election, virus aid package negotiation and the resurgence of the virus in the coming flu season can attest to the validity of the worries. Yet, the market has had its own mind ever since the March 2020 low. It just kept going higher without all the worries.
On last Thursday (10/08/20200) we sent out a private note stating that the small cap Russell 2000 index is breaking out in the midst of fiscal stimulus package negotiation. This is the first time ever that the Russell 2000 index is outperforming the Dow and S&P 500 since the Russell 2000 index topped in August 2018.
Since the NASDAQ found the bottom around 10500 level, it bounced anemically last week. All three indices managed to produce a weekly gain last week. But the cycle indicators are not presenting a picture of a finished bottom, meaning the bounce from the support level is a mechanism of trading, rather than investors initiating new positions.
The NASDAQ bounced from support at 10500 level twice last Monday (9/21/2020) and Thursday (9/24/2020). Despite the continued choppy selloff in the NASDAQ since the September 2nd top, there are some amazing pockets of strength in individual stocks which led us to believe that pervasive fear is absent at the moment in the market.
Last week the three major indices made some small progress on the downside compared to the week before. Underneath the indices, there are some notable sector rotations going on. And more interestingly, there are several small cap genomic stocks breaking out which led us believe that this correction is a focused correction, not a universal selloff that drags down almost every single stock.
