The Nasdaq enjoyed its biggest gain of 2021 on Monday, but the question now is whether the recent corrective action is over.
There is a slight pause Tuesday morning in the very early going as market participants catch their breath, but, typically, action like what occurred on Monday helps to create support from potential buyers who were hesitant to chase the move and will be looking for entry points at better prices.
The main justification for the recent correction has been inflationary fears and higher bond yields caused by optimism that the economy is likely to reopen faster than had been expected due to the pace of COVID vaccinations. In addition, the COVID stimulus bill is progressing, and there is some concern that will also create inflationary pressures.
This tension between the bond and equity markets is likely to continue, but there are still very clear signs of a strong appetite for stocks. Stock-picking is still a primary focus, but liquidity is shifting around very quickly, and the easy themes such as SPACs, cannabis, bitcoin-related names, biotechnology, solar energy, gambling, etc., are not quite as easy.
For a long time, the very strong pockets of momentum would bail out aggressive traders who were not disciplined in their trade management, but that is no longer the case. It is imperative that trades be handled more carefully now and that losing positions not be allowed to accelerate.
We'll see how quickly buyers show up again after Monday's strong push. It is likely that many who missed out will be watching for opportunities to buy at support levels.
My game plan is to tightly manage existing positions, look for entry points in my favorite names, and to keep digging for new ideas. I have no idea what the indices may do next, but after Monday's action, market bias is to the upside and favors individual stock-picking.
