After three days of selling, we are seeing some very healthy bounce action Wednesday. Breadth is running 5,300 gainers to around 2,000 decliners. The big-cap technology names were hit the hardest and they are helping the Nasdaq 100/Invesco QQQ (QQQ) to outperform with a rebound of more than 3%.
Typically, traders would not be too trusting of a bounce after the breakdown that we saw over the last three days, but times have changed and "V"-shaped recoveries are now the norm rather than the exception. Typically, after suffering a sharp drop, the psychology is to try to escape the anxiety-creating situation by cutting it back into strength, but what we see more often now is that fear of missing out tends to kick in rather than fear of another drop.
As I've discussed, this corrective action was fairly narrow, as far as the intensity of the selling. It was concentrated in the FATMAAN names and other sectors of the market held up quite well. Groups like special purpose acquisition companies -- SPACs -- and biotechnology suffered little downside and are now in a good position for upside.
I'm seeing some very solid breakouts in SPAC names like Forum Merger (FMCI) and, my "stock of the week," Landcadia Holdings II (LCA) . Also biotechnology names like Myovant Sciences (MYOV) , Trillium Therapeutics (TRIL) , and Forte Biosciences (FBRX) look quite good.
This is a two-tier market right now. There is a major difference between the action in the big cap technology names that become so grossly overbought and the rest of the market that looks quite solid technically and is not extended. Some traders are focusing on the volatility in the Nasdaq 100 names, but I'm sticking with good looking charts in secondary names. You just can't beat the trading opportunities in something like a Landcadia.
