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Where Did The Momentum Days Go?

Hey 5-Star Trader,

Congratulations! We have officially made it through the “Sell in May and go away” but it doesn’t appear that we are out of the woods yet. Lately, I’ve seen the indexes are running out of a catalyst to move in either direction. As a result, we are seeing consolidation all over the place. Reasons for this inaction could be because we made it through a very strong earnings season, the stimulus is dying down a bit, or the fact that there hasn’t been any major news to move the market.

We have also seen pressure on some retail favorites which has been affecting the overall health of high betta names. This high pressure has a domino effect because there were so many new traders in the market. Last year was their first taste of trading using high beta, volatile names─ many of which bought them at the highs.

Now, these positions are unwinding, and the reality that normal market conditions don’t mean printing money every single day has been rough on new traders, especially since they aren’t that interested in trading value names (such as Microsoft).

Last year was an anomaly in many ways, but the traders who are around for the long haul will still be here when the Nasdaq breaks out again. Right now, it’s just taking a breather and consolidating on multiple time frames, as are many sectors and industry groups and they just need a little bit of a catalyst to get going again, though I don’t think we will see the same market condition we saw last year. 

Waiting for a cue… 

The next catalyst I am looking for is the run into the July earnings season, along with an eventual breakout of this consolidation we are seeing. Overall, I am still bullish on the market, though the momentum days of the Trump administration have since died out.

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