The S&P 500 has been drifting lower all week after it gapped up on vaccine news on Monday morning. There has been some rotational action taking place under the surface that helped banks and value stocks early in the week, and helped FATMAAN and growth stocks yesterday.
What is most notable about the market is that the big picture issues aren't having much impact on the indices. The vaccine news seems to be well discounted, the headlines about growth in Covid cases is being ignored, even the election chaos is just a sideshow with no real market ramifications.
The focus of market players has been stock picking and that is obvious when you take a look at the way many individual stocks are moving. Electric Vehicles have been in a frenzy with many 'pre-revenue' names trading in crazy fashion. One name that I had as stock of the week a few months ago, AYRO, Inc (AYRO) has jumped from under $3 last week to around $7.80 this morning. I've taken the opportunity to sell all my holdings.
There are quite a few others that are moving like this and that is the focus of the hot money traders. These traders only care about finding the next big trade. They don't care about macro issues, fundamentals, or what the pompous pundits might say. They focus on price action and help to create some self-fulfilling prophecies at times.
One of the consequences of this type of action is that it impacts sentiment. It is hard to be too negative when there are stocks that are doubling overnight. The pros may scoff at these idiotic individual traders but many secretly wish they could play the game as well.
What we have to watch for is a shift in this action. When the speculative trading slows and small stocks stop running then things will turn and we'll probably see more correlated selling.
For now it is dip buyers and speculative traders that are in control. The bears have a pretty good negative narrative sell but that isn't nearly as appealing as trading a junk stock that is making big moves.
The indices are mixed to start the day but the hot trading action continues.