Mike Santoli’s market notes: Rally out of sideways pause, Netflix reminds us that tech is thriving

Published Wed, Jan 20 20212:23 PM EST

This is the daily notebook of Mike Santoli, CNBC's senior markets commentator, with ideas about trends, stocks and market statistics. A peaceful transfer of power within the stock market today toward the giant growth stocks tentatively lifts the indexes out of what looks, for now, to have been a harmless sideways pause. The Nasdaq 100-type stocks are taking their turn in what has been a constant rotation that's kept the market from any consequential pullbacks for more than two months. Investors had been shifting away from mega-cap growth and throwing cash at cyclical groups, a trend that got pretty extreme in the short term (massive flows into banks, small-caps, etc). Wednesday a bit of a reversal, perhaps after Netflix reminded everyone that well-positioned digital businesses are thriving. And when the rotation favors the Nasdaq 100-style names, it flatters the S & P, which is handily outpacing the average stock today. Semis, super-hot lately, are resting, for example, while AAPL – resting for months – is up 3% on not much of anything. This sort of thing is healthy bull-market behavior, and the trend also gets points for it being global (non-US stocks outperforming) and feeding off loose financial conditions (generous credit market). Very real chance the asset meltup – not to say bubble – is just starting to accelerate, making it hard to fight but tough to trust. Though in the current case this low-drama upward grind happens as swaths of the market are being pushed higher by greedy, impatient buying (SPACs, trendy new IPOs, penny stocks) and with a combination of overbought conditions and flagging momentum keeping some tactical observers in the "wait for a better entry" camp. S & P is now back to a 16% premium over its 200-day average, same as at the Sept. 2 temporary pre-correction peak. No magic to this math – and strong rallies that stay overbought are a sign of a powerful longer-term trend – but worth noting. Is it notable that this week bitcoin is weak and Tesla shares – despite multiple analyst price-target hikes – isn't doing much? Watching these risk-appetite tells. Best case: The market is letting overheated stuff cool off in turn rather than coming to a crescendo at once. Heavily shorted stocks have gone vertical. Unprofitable tech companies are piling on value at a wild clip. Short interest is at a low. Money market assets as a proportion of equity market cap at the low end of the 40-year range. So bears are scarce for sure. Responses to earnings once again mostly about the setup and whether the Street is comfortable extrapolating good results. GS and MS both with stellar results but shares off after blistering rallies. Unassailable quarter from Procter & Gamble but this is a "bunker stock" that folks don't want when everyone is positioning for the economy to rip. Overall numbers pacing strong and it's quite likely that within weeks this can moderate some valuation readings as forecasts adjust. Very mixed tape under the surface, 50/50 up/down volume. Equal-weight S & P up less than half a percent with the headline index ahead by 1.3%. VIX bleeding lower, in the 21s, likely was a bit of premium in there for a potential messy/disorderly inaugural. Sub-20 is what everyone's looking for to ratify a risk-on backdrop and get the systematic quant funds levered long, but we'll see if we can get there before the next index hiccup.

Co-founder and director of Netflix Reed Hastings delivers a speech as he inaugurates the new offices of Netflix France, in Paris on January 17, 2020.

Christophe Archambault | AFP | Getty Images

This is the daily notebook of Mike Santoli, CNBC's senior markets commentator, with ideas about trends, stocks and market statistics.