All week long the market dealt with headlines about a surging number of Covid-19 cases. It has slowed down the economic reopening and had a negative impact on sentiment. Still, many market players have been surprised that the market was not weaker.
After the broad selling Friday the S&P 500 closed under its 50-day simple moving average but still has support at the 200-day and has not breached the lows hit earlier in the month.
While the indices are struggling, there continues to be quite a bit of speculative action. What we have seen this week is a battle between the market-timing bears and the stock-picking bulls. The stock-pickers are shrugging off the macro news that the market-timers are focusing on and that creates anxiety among the big-picture folks that can't understand why anyone would be buying given all the negative out there.
The action Friday was further complicated by the massive Russell 2000 index reconstitution. Hundreds of stocks saw big jumps in volume as they were added or dropped from various indices such as the Russell 2000 ( (IWM) ETF).
The end-of-quarter games are not over, however. We will likely see some big asset reallocations next week as pension plans rebalance after a big jump in equity weighting during the second quarter.
The big question market players face is whether the spike in Covid-19 cases are going to produce another selloff like the one that started in February when it suddenly became evident that this problem was not going away. The big difference now is the massive fiscal and monetary stimulus, which should provide some support.
What keeps me from being too negative about this market is the "hot pockets" of speculative action. There is still plenty of cash out there looking for a place to go despite the Covid-19 worries. When folks are willing to chase a stock such as Tortoise Acquisition (SHLL) and many others it suggests that there might be more underlying support than the pessimists think.
Have a great weekend. I'll see you on Monday.