For the second Monday in a row stocks are gapping up on news of a Covid-19 vaccine. This morning, Moderna (MRNA) announced that its study has shown that its vaccine was 94% effective and also that it had a longer shelf-life than anticipated. The MRNA news was anticipated to be positive but this is better than expected and is causing some additional chasing in the early going.
It is important to note that last Monday, when Pfizer (PFE) announced the first positive vaccine results, stocks gapped up and hit highs near the open before selling off the rest of the day. It triggered severe rotational action with the Nasdaq 100 ETF (QQQ) finishing down more than 2%
Currently, there is pressure again on the QQQ and all the FATMAAN names except Alphabet (GOOGL) are indicated to open down. The rotational action is going to pick up again with the 'stay at home' names being dumped and the 'reopen' names gaining traction. However, there continues to be great concern about how Covid cases and hospitalizations are hitting record levels in the short term.
Although it will be months before vaccines are widely available, the market is discounting that fact right now and that is what is driving this action. Many stocks are technically extended but there are some very aggressive pockets of speculative action as well that are helping to keep things going.
The big question for us to ponder is how much chasing do we want to do at this point. The vaccines are very good news but to what degree are they already discounted by the market and to what degree is the market overlooking the short-term economic issues caused by the rise in Covid cases?
Typically the market will overreact to good news like this as it squeezed the bears and causes bulls to fear they are missing out. We have conditions for some 'sell the news' action in place but it is hard to underestimate how positive it is to have vaccines like this that are so highly effective.
We'll see if we have a repeat of last Monday's action but at a minimum, we need to watch for another surge in rotational action. This market is looking ahead to a return to 'normal' and it is going to take a while for the transition to play out.
My game plan is to protect gains, stay cautious about chasing, and to continue to look for good technical setups. This is a market more for 'junk' names than 'growth' and that is likely to continue.