Bonds are better today, but the major indices continue to struggle. Breadth is much improved at 4150 gainers to 3550 decliners, but there are only 100 stocks hitting new 12-month highs, which illustrates how deeply most stocks have corrected recently.
The list of 10% movers is also quite short, but there is a fair amount of bounce action as stock pickers are looking for some entries. They are not willing to do much chasing after being burned on Wednesday, but there are plenty of stocks that look washed out.
In the short term, I expect to see some crazy pockets of momentum in crypto and NPT plays, but there are two sectors that I believe will develop well for trend trades that last a few months.
The first group is cannabis. There is increased speculation that Congress will pass a bill fairly soon that will decriminalize cannabis nationally, which would lead to uplisting of many of the best cannabis stocks that are traded OTC right now. Names such as Green Thumb Industries (GTBIF) and Cresco Labs (CRLBF) are the real quality plays in the cannabis group, but many people are unable to trade OTC names. Once that limitation is lifted, I look for the group to explode higher.
This morning there was an article on Daily Beast that suggests that the Biden Administration has a bias against cannabis legalization, and that seems to be creating some pressure on the group, but the political momentum in favor of cannabis seems too strong for that resistance to persist. In the next few months, I expect anticipation of Congressional action to increase.
The other group that I am watching for position plays is SPACs. SPACs have lost their luster lately due to concerns that there are just way too many of them now but what isn't being appreciated is the asymmetrical risk that exists in the good names. These stocks can't go below $10 but have some great upside potential in various cases.
One name we are discussing at Sharkinvesting.com this morning is Good Works Acquisition (GWAC) , which is working to close a deal with a bitcoin miner. If bitcoin goes on a strong run, this stock should have very good potential. However, if there is no run, that stock is trading around $10.90, and therefore the downside risk is only about 10% as NAV is $10
There are many other SPACs that offer this risk/return setup, and I expect that the market will sort them out in the months ahead. I will be discussing this topic extensively.
We are seeing better trading action as the day continues, and I'm looking to put more cash to work.