The indices, and the Nasdaq in particular, have been running nearly straight up since the March lows. Every day there are highly paid strategists and pundits warning us that it can't last much longer. The headlines are screaming about a surge in Covid-19 cases and concerns about how the crisis will slow the economy and impact valuations, yet the beat goes on.
By most definitions, we have a stock market bubble. There is extreme chasing of the very extended FAANG stocks, no lasting pullbacks and a very high level of speculative trading in select small caps. Small traders are extremely confident if not downright cocky.
The easy choice to make is to declare that it can't last and to run for the safety of cash. It is an understandable decision but the opportunity lost of doing so can be great. The profits that occur during 'bubble' action can be tremendous. As I discussed this weekend, aggressive trading is not inconsistent with a cautious market approach.
This morning, stocks are set to open sharply higher again. There are a number of target increases for market leaders Amazon (AMZN) and Apple (AAPL) , and a huge semiconductor takeover as Analog Devices (ADI) acquires Maxim Integrated (MXIM) . Speculative trading remains very robust as well. WiMi Hologram Cloud (WIMI) , which blasted up 280% on Friday, is trading up an additional 58% this morning.
I'm probably being repetitive but my best advice for navigating this market is to stay focused on the price action and not try to be more defensive until there is some weakness. Twice last week I tried some indices shorts on intraday reversals but I was overly anticipatory and the trades failed. It is going to take more than some minor dips to turn the market tide.
My game plan is to stay focused on the strongest small caps stocks and sectors. The winners have been in Electric Vehicles, SPACs, and on Friday, the cannabis sector came alive. The FAANG names and chips are being chased this week.
Don't forget the earnings season starts this week with a number of big banks reporting. They have been major laggards but there are some folks that are hopeful that maybe the market will start to rotate out of the expensive growth names and into the maligned 'value' names. I'm not counting on it, and even if there is some rotational action I expect the overall market to start to weaken.
It is offensive to some of the great intellectual bears out there but the smart move is to stay with what is working. When it stops working, then do something else. That is really all you need to know right now.