On the surface, the market seemed calm, but below, fireworks erupted

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Indices ended the day mixed, with the Dow Jones advancing on positive retail news from Home Depot (HD) and Walmart (WMT), but other indices are struggling on weak tech , growth, small caps and energy. The width ended up being slightly negative.

Looks like it was a fairly calm day, but there were fireworks below the surface. The action started off slow, but as has been the trend lately, bottom buyers rushed in and created strong momentum. The S&P 500 warmed up quickly and was moving parabolically by midday.

Another interesting development was that retail traders were very actively targeting stocks with high short interest. Bed, Bath and Beyond (BBBY) surged, despite being downgraded to “Sell”. Weber (WEBR), GameStop (GME), Torrid Holdings (CURV) and Veru (VERU) are a few other stocks that rose mainly due to short cuts.

The stock felt downright frothy as the S&P 500 hit its 200-day simple moving average, which seemed to trigger a very robust selling program. The shares reversed very sharply with about two hours remaining in the regular trading session. There was no breaking news that caused the movement. There were just a variety of technical levels that suddenly became very evident once the reversal started.

There was a slight bounce in the last few minutes of trading, and the indices didn’t close at their lows, but the intraday swing was spectacular and that’s the kind of thing that tends to cause strong tendency to struggle. This market was definitely overheated, and now we will see if there are finally some healthy consolidations and pullbacks.

At this point, there is no point in wondering if it is a top or not. The market needs a rest, and we had an indication that perhaps the chasing and mispositioning is beginning to end.

Markets this strong usually have good support and don’t collapse suddenly, but today’s intraday reversal will likely energize the bears a bit.

Have a good evening. I will see you tomorrow.

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