When taking a 10,000-foot view of the market, on the surface, not much has changed: The broad market is still trending higher, big-cap indexes have been largely sideways for three months, and the growth complex is still churning—some charts look great, some look terrible, and a lot are stuck in no-man’s land.
But when you dig into dozens of individual charts, you can see that there’s underlying tension building, and earnings season is likely to resolve it.
The intermediate-term trend is still up overall, especially when you look beyond just the mega-cap measures. Small caps, midcaps, and the NYSE Composite have been acting better than many assume—pulling back to moving averages normally, not collapsing.
At the same time, the market clearly isn’t in “easy money” mode.
The NASDAQ has been mostly sideways since late October, even after briefly pushing to its highest level since then.
The S&P 500 has toyed with new highs, but progress from the October peak has been modest—more churn than thrust, with the index up a mere 1% or so from that peak.
In other words, the market is still bullish, but not so bullish that you can afford to be complacent. There are opportunities, but this is not a market where you blindly chase strength and expect it to stick.
Under the Surface: Rotation Is Still in Play
One of the clearest “tells” is the ongoing rotation.
While many growthy, speculative, and newer-issue areas have struggled to sustain upside, defensive areas have attracted steady demand—the classic “toothpaste and toilet paper” trade. That doesn’t mean the market is doomed, just that investors are still prioritizing safety over aggression right here.
That’s part of the reason that Cabot Growth Investor has been relatively cautious, with plenty of cash, waiting for growth stocks to prove themselves.
Growth Is Shaping Up
That said, for as tedious as the past few months have been for growth stocks, one area where we’re seeing an improvement lately is the number of setups out there.
More growth stocks are near the top of reasonable ranges heading into earnings, with a few starting to break out on the upside. It’s not the dream scenario—where a stock gaps up and runs for five or 10 straight days—but something that’s often the first step toward leadership:
- Stocks pop on earnings.
- They pull back for a couple days.
- They hold key levels and settle down.
- Then they attempt to resume their advance.
That pattern—up, digest, hold, then try again—is a meaningful change from the “pop-and-drop” behavior that we see in weak growth markets, and which was seen from many issues since the Nasdaq’s October peak.
It doesn’t guarantee a new uptrend in growth. But it’s a clue worth respecting.
The Crosscurrents
If you want the clearest summary of the current environment, it’s this:
- Growth is trying to perk up, but there’s still selling on strength.
- Commodities and cyclicals have pulled back, in many cases in what still looks like “normal” digestion—though another few days of weakness from here would increase the odds of something bigger.
- Multiple indexes and sectors are sitting at inflection points that could see them break higher and confirm, or fail and morph into a top.
In a healthy growth environment, breakouts tend to follow through and leadership expands. In a difficult market, rallies into resistance get sold, breakouts fail, and gains come with whiplash.
Right now? We’re seeing signs of both.
Looking Ahead
There’s a heavy earnings calendar ahead, and it should help clear up the current mixed evidence.
If earnings reactions disappoint broadly, we may look back and see this sideways action as topping behavior and get a meaningful shakeout.
If earnings unlock breakouts and leadership, there may be a lot more to sink our teeth into, especially among stocks that have gone nowhere for three to six months and are now tightening up.
Right now, we’re leaning bullish on the broad market and a bit more cautious on growth, but we’re staying flexible until the market reveals whether this is a rotation back to growth leadership—or a broader air pocket.
At the end of the day, the market’s general posture hasn’t changed much, but we’re certainly seeing more setups. And with earnings acting as the catalyst, odds are high that the market gives a clearer signal soon.
Until then, stay opportunistic, keep risk contained, and be ready to press the gas only when the market proves that growth is ready to run.
For a deeper dive into the state of the market, as well as analysis on a handful of stocks we’re watching now, check out the latest Cabot Weekly Review video.
[author_ad]
