The Most Important Thing to Know About the Latest Market Action

As you contemplate this market action, the most important thing to remember is that strong momentum tends to stay sticky to the upside. Stocks typically don’t suddenly reverse and collapse after a very strong run. There are pullbacks and dips, but those that missed out on the run and shorts that are being squeezed will jump in quickly on minor weakness and help to hold things up. It typically takes several failed dip buys before negative momentum starts to build. The mistake that many bears make is that they try to short into strength rather than wait for weakness before they become more aggressive. There are a couple of notable things about the action Thursday morning. The first is the huge difference in performance between the DJIA and the Nasdaq 100 (QQQ) . The Dow is down 0.3%, while the QQQ is up over 2%. That difference has shrunk a little already, but it is a function of traders piling into big-cap technology stocks after Meta Platforms (META) exploded higher. With Apple (AAPL) , Amazon (AMZN) , and Alphabet (GOOGL) reporting Thursday after the bell, there are likely to be some traders looking to go long the Dow and short the QQQ to catch a reversal in the relative performance. Another notable thing Thursday is that there is much more focus on individual stock-picking. My list of stocks that are moving up more than 10% is the longest in quite a while. Market players want to put some cash to work, but they don’t want to chase extended indexes, so they are more focused on picking individual stocks that have better technical setups and the potential for positive earnings news. I see a good example of individual stock-picking on my screens Thursday morning in the beauty sector. elf Beauty (ELF) had a very strong report Wednesday night, causing increased interest in other beauty-related names such as AirSculpt Technologies (AIRS) , The Beauty Health Company (SKIN) , InMode Ltd. (INMD) , and Hims & Hers Health (HIMS) . They will all benefit from a better discretionary spending environment which ELF appears to be indicating is in play. I continue to hold high levels of cash, but I’m staying selective with my buying and am even reducing some things that have made big moves. I’m still not worried about the market running away from me. Good buys will continue to develop as things develop. (GOOGL, AMZN and AAPL are holdings in the Action Alerts PLUS member club. Want to be alerted before AAP buys or sells these stocks? Learn more now.) Get an email alert each time I write an article for Real Money. Click the “+Follow” next to my byline to this article.

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