Stocks suffered some corrective action on Wednesday as the high-momentum names suffered as DoorDash (DASH) and other IPOs and secondaries attracted the hot money. While the recent momentum and SPAC names saw a jump in negative volatility, DASH jumped nearly 80% from its offering price.
This market has been overdue for some sort of corrective action and the offerings provided a convenient excuse even if they didn't impact overall liquidity that much. The price action often determines what the headlines might be and in this case, it was quite easy to attribute the weak action to a combination of overbought technical conditions and big IPOs.
The IPOs are not finished yet. There are two more large ones Thursday -- Airbnb (ABNB) and Hydrofarm Holdings Group (HYFM). Also, there are several secondary offerings with Rocket Pharmaceuticals (RCKT) being the largest.
Wednesday's offerings cooled off both the high-beta technology stocks favored by Investors Business Daily Innovator IBD 50 ETF (FFTY) and the SPAC sector. The SPAC sector still had some big movers but the level of volatility jumped sharply and there were sharp drips almost exactly at the same time that DASH started trading.
One of my favorite SPACs, Trine Acquisition Corp. (TRNE) , changes its symbol today to Desktop Metal (DM), and is scheduled to ring the opening bell. It is currently indicated up more than 7%. Some of the other recent SPACs, such as QuantumScape (QS) and Luminar (LAZR) had furious runs after their symbol changes and it will be interesting to see if DM follows the pattern
The key issue for the market right now is the digesting of these big offerings. They are a good excuse and explanation for some short-term corrective action but the wave of liquidity that has driven this market since the lows in March does not look like it is going to abate. There was a setback to the negotiations for fiscal stimulus Wednesday but that is going to continue to be a source of optimism for the bulls.
While the trading Wednesday was challenging, it was not a sufficient shift to conclude that the market is undergoing a major change in character. I will continue to stay focused on the pockets of strong trading action and will be looking for entry points. I do not believe that the SPAC sector has topped and will continue to pursue those names aggressively.
Early market indications have weakened and we are looking at a flat open.
