Positive responses to earnings from Snap (SNAP) , Chipotle Mexican Grill (CMG) and Texas Instruments (TXN) provided a convenient reason to put some cash to work on Wednesday. The Covid-19 data continues to improve and the push to reopen the economy is gaining some traction, despite an intense political battle and that helped to calm the markets.
What was most notable about the action on Wednesday, however, was how calm it was before it picked up in the final hour. We have not seen intraday action this narrow since the market correction began in February. It is an indication that some of the emotion that has been driving the volatility is starting to dissipate.
One factor that many bears seem to be underestimating is the level of liquidity. As the action started this morning, it was obvious that there was plenty of "hot money" looking for action. These traders have little concern about the bigger technical and fundamental picture. They are primarily focused on trying to catch some action in names like SNAP or CMG.
This liquidity-driven action confuses the bears, who can't figure out why all the negatives out there are being ignored. This action also produces the day-to-day inconsistency which seems quite random.
While the action was positive, it did little to change the big picture. We have a "V"-shaped move off the March lows that has stalled and is looking for support. The issue now is whether Tuesday's lows become that support and whether there is sufficient buying power to challenge the last six weeks' highs.
This market is driven by an unusual mix of fundamentals, macroeconomics, technicals, and liquidity. Those forces are changing on a daily basis and it is why we can see the indexes down 3% one day and up 2% the next. Don't read too much into that movement. This market still faces substantial challenges longer term.
Have a good evening. I'll see you tomorrow.