After mixed action on Wednesday stocks sold off late in the day and closed in the red. However, breadth remained relatively strong and the pockets of speculative trading have not dried up. There were around 50 stocks on my scans that were up more than 10% on the day with continued interest in electric vehicles and SPACs.
The trading action seems to indicate some level of complacency, but there are dip buyers providing support and there is still a high level of FOMO (fear of missing out).
The conundrum that the market is facing right now is that it is looking ahead to the positive implications of Covid-19 vaccines while at the same time there is concern about the jump in cases and hospitalizations and the potential for economic shutdowns. One of the reasons stocks weakened Wednesday afternoon was news that New York was moving to shut down schools again.
Our main task right now is to evaluate whether we are seeing just some routine consolidation and profit-taking or the beginning of a more severe pullback. There simply is no way to know so it is extremely important to focus on trade management and not let losses grow too deep.
Many of the stocks I'm looking at still have very good charts and fundamentals look solid. Still if the speculative interest cools I will be taking some stops and looking for remounts down the road.
There isn't much news flow right and that may embolden the bears a bit but fear of a squeeze will be lurking as well.
There is no reason to be too concerned about this market right now but stay vigilant, manage positive closely, and be very selective with buying.