The market is broken, well, pieces of it anyhow.
It doesn't feel as fragmented Tuesday as it did Monday. Reality has set back in on bankruptcy names. Tailored Brands ( TLRD
) is the latest in retail to consider bankruptcy. My biggest fear this morning was seeing the stock indicated 10% higher in the pre-market on the news. After the open, it plummeted quickly from $1.75 to $1.25. Within 15 minutes, shares traded back to $1.75 and I thought, "Oh, here we go again," but it appears reality is slowing coming back into the market. TLRD shares have retraced lower, currently down 21% at $1.33, probably not terribly fall out of line with the news.
Chesapeake Energy ( CHK
) has been on and off halted all day, getting slammed as its bankruptcy moves forward. Hertz ( HTZ
) still hanging in there, despite being down a little now. Even Macy's ( M
) , after being higher after hours on debt refinancing and an earnings beat, has turned red. Then again, when you lose $2.03 per share and it's a "beat," you know business is awful.
When we examine names like Macy's and Tailored Brands, it reminds us how some adjustment to the shelter-in-place and work-from-home may have a lasting impact on traditional businesses, especially brick-and-mortar retail. Some specialty companies like a Lululemon ( LULU
) , RH (Restoration Hardware) ( RH
) , or Williams-Sonoma ( WSM
) can survive the change, because they have products people want to try, see, and touch in person before buying. Clothes, and specifically dress clothes, may see a permanent decrease in demand, because work-from-home becomes more common. I still prefer a Stitch Fix ( SFIX
) to other non-discount or specialty retail folks and with that stock trading lower post-earnings Tuesday, I would give it a consideration.
But there are other signs speculation is too rampant. In following many of these Special Purpose Acquisition Companies (or SPACs), I'm seeing the warrants of the underlying SPAC trade much stronger than the underlying itself.
The premiums continue to grow similarly to the way an option premium rises in conjunction with the implied volatility. On many of these SPACs, the backdoor calculation into implied volatility has increased by 30% to 100% over the past 10 to 30 days.
Ironically, in the middle of the speculative craziness, we see the FAANG names running 3% higher across the board with the exception of Alphabet ( GOOGL
) . On the plus side, individual stock trading is there to be had. On the negative side, it may require you suspending most of your logic and stepping outside of your risk-reward comfort zone a tad if you want to be involved in the market.
The key word is "if." You don't have to be involved right now. I mentioned on Monday that I didn't have a clue as to our current drivers. For me, that means quicker trades and more cash, but I'm still staying active with individual names. More of my trading comes in scalps or quick flips with a few smaller-sized, big speculative names (like in the SPAC space), but I have been quick to take losses. If a speculative position is going to move, I mean really going to move, those moves are happening quickly. If you find yourself sitting on one for days while others move, odds are you are in the wrong name from a trading perspective.
And the very best part of this market -- if you miss that big, huge opportunity today, there will be another one tomorrow. That's just the environment we're in right now.
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