Market momentum gained traction on Tuesday as the DJIA hit the 30,000 level for the first time in history. Some of the crazy speculative trading in electric vehicles, energy, and SPACs reversed but market players were extremely anxious to put more capital to work and pushed nearly 1000 stocks to new all-time highs.
The action produced some extended technical conditions but momentum of this magnitude does not die easily. Extended stocks can become even more extended as short squeezes and 'fear of missing out' dominate the action.
As I've mentioned, the two days surrounding the Thanksgiving holiday have a very strong record of positive gains but that doesn't mean everything is going to go up especially when there has been some very intense rotational action recently. It is rotation more than anything else that defines the market right now.
For a while, the market has been dominated by good stock picking in individual stocks. That intensified on Monday with an outright frenzy in some of the EV names and felt quite a bit like the bubble days back in 1999-2000. The frenzy cooled on Tuesday but it was replaced by a rotation back into the traditional 'growth' names such as the FATMAAN and big-cap technology stocks. Groups like cannabis also attracted attention.
What was most positive about the action was that money flowed into both value and growth stocks as small-caps continued to perform extremely well. It was very broad buying but with some recognition that certain areas of the market had run too far and too hot.
Now with holiday trading upon us, we will see where the hot money flows today. There is concern that the EVs are too extended but that hot money needs a place to grow so it should start bubbling up in other sectors. Keep in mind that the positive seasonality tends to reverse on Monday so this is all about trading and not investing at this point.
Early action is mixed and that may be a good thing. A big gap up open would invite some quick profit-taking but a soft start would allow for some trading pressure to develop during the day.
This market has fully embraced the narrative that the economy is on the road to a full reopening and it is looking past the short term problems of a surge in Covid cases. There are plenty of obstacles ahead but for now, the main focus is that the worst is coming to end and a return to normal is on the horizon.