You couldn't tell it from the Dow, but momentum has come to a grinding halt.
The small cap and special purpose acquisition froth is dead, at least for now. It seems as though every SPAC that doesn't have a partner or who identified a partner but hasn't closed the merger is headed back to $10. We're even seeing a few names dip under redemption value. It's important to remember that once a SPAC is past its merger vote, any floor is removed. That's why we've seen Clover Health ( CLVR) dip below $8.75. This was a favorite of the initial public offering-series SPACs before the merger, but has become one of the worst performers of the past six months, when compared to its $10 offering price.
While I'm comfortable holding names near their floor, the options strategies I implemented a few weeks ago haven't played out well. I'll consider a roll (closing March contracts and replacing with April contracts) on names I like toward the end of the week, but it's a tough market to say the least.
We've entered a phase when buying the first dip isn't working. The market is making it hurt. Although we talk about not averaging down, there should be an asterisk on that statement. Don't average down if your position is full-size. If your plan entailed buying in tranches, however, then simply follow your plan.
The mistake some new traders make is buying the dips quickly and continuing to buy them. It's the continuing to buy part that is hurting the most now. The other scenario is buying the first bounce but not having any stop. We've been dropping, getting a pop, then dropping more. This slow grind is a killer.
Looking at the Invesco QQQ Trust ( QQQ) , I'd prefer to just rip the Band-Aid off. Break $310, trade to $300 the same day with a small bounce before the close. The next day, whoosh under $300 early, then rally to close green. That would likely do a great job of flushing out the last of the late dip buyers and getting stocks into hands that may be a bit stronger.
I swear the more often we pronounce this time is different, the more often it's the same. The market needs a reset from the crazy valuations and aggressive trading. That doesn't mean those things will end, but they need a pause and reset to have any chance of continuing. I'd remain cautious until we get a true flush. This action is frustrating but controlled. That should have those with no risk management in place on their trading a bit worried.
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