A gap-up open on Monday morning has been the norm for a while, but the one this Monday morning comes with some very interesting acquisition-related news flow.
Oracle (ORCL) is cutting a deal to acquire TikTok, Gilead Sciences (GILD) is acquiring Immunomedics (IMMU) at a substantial premium, Merck (MRK) is taking a $1 billion stake in Seattle Genetics (SGEN) , and Nvidia (NVDA) is acquiring chipmaker Arm from Softbank.
This sort of deal activity appears to indicate that maybe valuations are not as outrageous as many of the market skeptics have been telling us. The action in the big-cap technology names has been disconnected from the broad market for quite some time and there have been concerns that the group could correct without also killing the broader market.
Although there is a perception that much of the market is very extended due to the strong action in the FATMAAN names it just isn't true. Only around 43% of stocks are trading above their 200-day simple moving averages (SMAs). They have bounced off the March lows but they have not run as fast or as high as the Nasdaq 100, which is still about 12% over its 200-day SMA even after the recent corrective action.
A good example of the disconnect is the action in biotechnology. The sector topped on July 20 and has been drifting lower for almost six weeks. This is obviously not the same sort of euphoric action that drove big-cap technology. The fact that there are some big deals in the sector here on Monday affirms that this group is in a much different position than the big-cap technology stocks.
Biotechnology is not the only group that is uncorrelated with the Nasdaq 100. Special purpose acquisition companies (SPACs) have been extremely hot lately and there is still plenty of good speculative action in individual stocks. The aggressive trading in lower-priced speculative junk has dried up and we aren't hearing as much about Robinhood traders, but there still are many active individual traders looking for action and they are providing some interesting movement.
The indices are in a somewhat precarious position technically as they deal with the 50-day SMA, but this is a tale of two markets. The FATMAAN names are coming back down to earth and looking for support while many other areas of the market are developing strong chart patterns and even attracting merger deals.
Don't focus too much on the indices or lose sight of the good stock picking that continues.
