It was an emotional day on Wall Street as small investors did battle with institutional short sellers and the indexes suffered their biggest selloff since Oct. 28.
The selloff was not triggered by any specific news, but seemed to be primarily a product of the recent frothy action. The huge short squeezes in stocks like GameStop (GME) and AMC (AMC) helped to create a feeling of instability, and since stocks were already extended, the selling momentum gained some steam.
The good earnings news on Wednesday night from Microsoft (MSFT) did nothing to help the market, but so far, this action has not had anything to do with earnings or fundamentals. Earnings tonight from Facebook (FB) and Tesla (TSLA) are also seeing a negative response as we await the mighty Apple (AAPL) .
The big question now is whether this action is just some long-awaited -- and much needed -- correction or the start of a major market reversal. The bears are ready with a long list of arguments for why stocks are headed for the depths of despair, but we will need to see some downside follow-through to really put the "Fear of the Bear" into this market.
Money rotated today into short squeeze plays, and some longs had to be sold to cover big losses on short positions by hedge funds. The liquidity is still out there, but it was concentrated in these short squeezes, and that meant that other hot groups such as special purpose acquisition companies, electric vehicles, cannabis, solar energy and gambling lost support. Many of these names are not in bad shape technically, but they may need a little time to regroup.
I reacted to the weak action by raising some cash. I would have sold more, but the charts were not that bad. This selling could easily accelerate from here, but I'll be waiting to see what sort of support shows up tomorrow.
Have a good evening. I'll see you tomorrow