After the chaos of a major stock squeeze last week, market players were braced for more downside this week. The wild short squeezes of stocks like GameStop (GME) and AMC Entertainment (AMC) caused many hedge funds to sell down long positions to cover losses on short positions. This is called "degrossing," and it was not immediately clear to what degree this process had already progressed.
Apparently, the repositioning was done quite quickly, and market players were in position for a new round of buying. Futures looked poor on Sunday night, but were positive by the time the opening bell rang and then trending up most of the day. By the close, breadth was excellent, with around four gainers for every decliner. More significant, the stock-picking action in small caps picked up very nicely, and that action looked much like it did before the crazy short squeeze action hit.
The action last week was very unsettling to the market, but one thing that was clear was that there was still plenty of liquidity. Some funds were caught on the wrong side of the trades, but the financial power of small investors was impressive, and that is not just going to go away. Some of that money rotated into silver, and there were a few squeeze plays like FuboTV (FUBO) , but what was most notable was that money flowed back into some of the leading sectors like special purpose acquisition names, cannabis, and electric vehicles. It was a revival of stock picking, and it was quite positive.
Now the question is whether it will continue. We have a slew of earnings reports to continue, and you can be sure that "Wall Street Bets" and some of these other coordinated social media groups will try to push some stocks around, but they are finding out quite fast that they are up against some major forces that are quite powerful.
Technically the indexes still have work to do, but the price action in individual stocks was much better, and that is key. The fear of missing out is going to start to bubble back up, and the hot money is going to be looking for the next great trade.
Have a good evening. I'll see you tomorrow.