It looked like a mild day of action, with the Nasdaq managing a gain of around 0.7% and the S&P 500 inching up 0.4%, but under the surface, it was extremely chaotic.
The day started with some tremendous short squeezes in names like GameStop (GME) , BlackBerry (BB) , and Bed Bath and Beyond (BBBY) . There were also very strong pockets of momentum in small caps, special purpose acquisition companies, and some other favorites. It was some of the most aggressive trading action that we have seen during this run and was causing some increased concerns as it not only was frothy, but manipulated.
A little before 11 a.m. ET, the market sold off very sharply, with just about everything dropped simultaneously. It later came to light that a large hedge fund had been caught holding large positions in names like GME and had to be bailed out in the amount of $2.75 billion. That caused some disruption in trading and caused a very abrupt drop. Traders did not know exactly what caused the big move, which helped to create some confusion and uncertainty, but stocks bounced back, and by the end of the day, the S&P 500 was close to the highs it hit in the morning.
In addition to the "flash crash" type action, there also was some rotational action taking place. Banks struggled, FATMAAN names reversed after gapping up, small caps were flat, but the wild momentum in individual stocks continued, and there were nearly 1,000 stocks hitting new 12-month highs.
The sharp intraday drop excited some top-calling bears, but the sell-off didn't even last a half hour and the recovery in the afternoon was quite good. If you are looking for reasons to distrust this market, that sort of volatility is a good excuse, but it looks like a one-off situation, rather than any real shift in the market action. These squeezes are not healthy action, as they are intentionally manipulative, but those situations always resolve themselves eventually.
I cut a few things into the volatility, but still see no reason to be too bearish. Plenty of stocks continue to have very position price action.
Have a good evening. I'll see you tomorrow.