In the last two weeks, the indexes have had three very sharp selloffs, which were followed on the next trading day by very sharp bounces. We had another one of those bounces today with the Dow Jones industrial average up 579 points after falling 730 points on Friday. Each time there is a sell-off, the headline reads that it is due to worries about the growing number of Covid-19 cases. Each time there is a bounce the headline reads that it is due to optimism about the economy recovering.
What is important here is the pattern rather than the reasons. The big bounces tell us that there is still substantial buying power out there and a belief that the Fed is not going to let the market pull back very much. There continues to be very strong speculative buying, even when the indexes are under pressure, and there are no signs that it is drying up.
Some of the action Monday is a function of the end-of-the-quarter moves made by large function. There was likely some reversals of the Russell rebalancing and the spike in the closing minutes was probably due to some allocation trades. This is going to continue Tuesday and will be extremely difficult to game. Quite a few bears are looking for an allocation out of equities and into bonds to hit, but it usually is not that simple or easy.
The most bullish thing about this market continues to be the excellent stock picking. It has been a bit choppier, but even names like Boeing (BA) are driving the indexes in addition to some of the speculative electric truck plays.
The time to worry about this market is when the stock picking dries up and stocks start to move together to the downside, but if three big drops in the last two weeks can't kill this market, then we have to wonder what will.
Have a good evening. I'll see you tomorrow.