After some overnight volatility, stocks look set for a mildly positive open here on Wednesday. President Trump caused concern that he may not sign the fiscal stimulus deal when he complained about some of the provisions and said payments should be increased to $2,000 per person from $600, but it is still expected that the deal gets done. Trump's comments caused some worry, but stocks stabilized as they look ahead to economic news and the latest on Covid.
The thing that is most notable about the market right now is the huge disparity between the extreme momentum in certain small-caps and the lethargic action in the S&P 500 and Dow Jones Industrials. The DJIA is close to the same price it was on the morning of Monday, Nov. 9, when vaccine news caused a big spike higher. By comparison, the Russell 2000 is up more than 10%.
This outperformance of the Russell 2000 index doesn't begin to capture how strong certain sectors of the market have been. Special purpose acquisition companies (SPACs), bitcoin, electric vehicles, batteries, solar energy, biotechnology and other secondary groups have been causing many traders to compare the action to the Internet bubble in 1998-2000. It is not quite as frenzied, but some stocks are making crazy moves. A good example is battery SPAC QuantumScape (QS) , which has gone from around $12 in October to more than $130 at the close Tuesday night. It isn't that unusual for a stock to go up tenfold, but this is happening faster and more frequently with some names right now.
This action is not going to last forever, and the big question now is to what degree it will persist as we finish up the year. The bulls have positive seasonality and extremely strong momentum to keep the hot stocks moving, but there is growing concern that it is just too hot and that some aggressive profit-taking is around the corner.
Here on Wednesday morning it looks like the speculative traders are ready to run again. I'm seeing stocks such as Lithium Americas (LAC) and ReneSola Ltd. (SOL) running again. Traders are looking hard for the next play and are probably more optimistic than usual due to hopes that the traditional Santa Claus rally will gun things even higher next week.
My game plan remains the same. Forget the indices and focus on the hot pockets of momentum. I'm going to harvest some gains along the way, but I'm also going to keep pushing and trying to find more hot momentum. There is a crowd of individual traders that is making this action self-fulfilling to some extent and I'm going to run with the mindless herd as long as possible.