Despite the inclination of so many market participants to predict what will happen in the market next, it is quite clear that one predicted a massive short squeeze by small retail accounts that would send hedge funds scrambling to reposition. While many market players were nervous about some sort of corrective action, it didn't play out as they had envisioned.
The reverberations of the short-squeeze of (GME) , (AMC) are still being felt, and if we are going to navigate this market effectively, we need to understand the rotational action that is taking place.
The most important issue right now is that this social media-driven action is not going to suddenly disappear. Brokers, like Robinhood, complicated trading with a variety of restrictions last week, but some are being removed. In addition, the small traders are rotating into other trades. Currently, the trade that is gaining the most traction is an attempt to 'corner' the sliver market. The iShares Silver ETF (SLV) is gapping up around 9%, and miners like First Majestic Silver (AG) are up 27%.
Moving the silver market is quite a bit different than squeezing a stock like GME that was 120% short. It will be interesting to see how sustained the buying is and whether some of the miners rush to do secondary offerings to capitalize on the strength. We've seen some major funds and large holders sell into GME and AMC action, and that is likely to occur in silver, and other squeeze plays as well.
What was most notable about the GME squeeze was the ability to sustain it. There is still enormous pressure on social media to keep the run going, but the primary target - Melvin Capital - took its punishment and is now trying to regroup.
Another theme to watch is our recent favorite, the SPACs. The Wall Street Journal has an article entitled "GameStop Day Traders are Moving Into SPACs." That sounds like old news to me, but it is a natural theme for aggressive traders and should persist.
Bitcoin (GBTC) is also viewed as a potential beneficiary of this increased activity by small speculative traders and will be on the trading radar.
The most important issue facing market participants right now is navigating rotational action. Have large hedge funds already sold down sufficient longs to cover shorts, and will they be looking to jump back into some favorites? Will the social media money stay focused on GME and AMC, or will it start to rotate into other plays like silver? Will the small traders be able to sustain the momentum in the areas that they target? That is really the primary question when it comes to trading this market.
The most favorable thing about this market for months has been the very robust stock picking. The favored stocks can shift quickly, but there is always something working. My focus is to keep finding those stocks that are gaining attention and to trade them aggressively.