After a mixed week of action, stocks are gapping higher here on Monday morning on several positive headlines. The Covid-19 vaccine has been shipped and will start to be administered today, a bipartisan group in the Senate is pushing forward a fiscal stimulus deal, and officials in the European Union say a Brexit deal could come this week. Throw in some positive seasonality and a high level of speculative interest in selective stocks and we have a recipe for a solid open.
There are a few more secondary offerings and initial public offerings (IPOs) this week, but a couple high-profile names that include Roblox have been pulled after the gross mispricing of the DoorDash (DASH) and Airbnb (ABNB) deals. There is speculation that companies are looking for alternatives such as auction IPOs or special purpose acquisition companies (SPAC) to avoid situations where the stock doubles in one day, which primarily benefits underwriters and their clients.
While the indices needed some rest and consolidation, which they saw last week, the key to this market remains the strong speculative interest. I've been celebrating the robust stock picking and the hot themes such as SPACs, electric vehicles and solar energy for a while and will continue to maintain a positive market view as long as that continues.
Last week, the giant IPOs and secondaries disrupted the flow of liquidity, but there was still very aggressive chasing of many individual stocks. One thing we will need to watch for this week is that Tesla (TSLA) will be added to the S&P 500 at the open next Monday, Dec. 21. There will be many billions of dollars rotated into the name by index funds, which may cause some movement in other S&P 500 stocks. Once again we may see some shifting liquidity, but that won't necessarily have a big impact on speculative trading in secondary stocks.
As I've discussed, there are index-driven markets and stock-picking markets. This has been a great stock-picking market, but the big-picture pundits keep trying to come up with negative narratives to support the view that the indices are in danger. At this point there just isn't the sort of correlated selling in stocks that suggest that a downtrend is forming. When we see extreme negative breadth and fewer stocks moving 10% or more during the day then it will be time to be more aggressively defensive.
Currently, this is a market for finding good stock picks, so that is going to remain my focus.