The market has been choppy this week as it dealt with the news of a surge in Covid-19 cases and hospitalizations but also increased optimism about the promise of a vaccine.
On Thursday the pessimists gained the upper hand as several states advised that shutdown measures be taken into the Thanksgiving holiday as many hospitals are dealing with capacity constraints. Also, Senate Majority Leader Mitch McConnell made negative comments about a fiscal stimulus bill, which made it likely that nothing will occur on that issue very soon.
Following the excitement over the Pfizer PFE vaccine announcement on Monday morning, there has been growing concern that the solution to the Covid crisis may not be that quick and easy. It will take months before there is broad distribution and there is great concern about how bad the situation may grow before it starts to trend down again.
There are some good reasons for a negative view but what has saved this market many times in recent months is the focus on speculative action in individual stocks. We saw this again Thursday as traders chased some hot pockets of momentum in groups such as electric vehicles and cannabis. Also, some recent initial public offerings (IPOs) such as Farfetch (FTCH) and Futu Holdings (FUTU) are exhibiting strength.
This interest in individual stock picking is helping to prevent the sort of correlated selling that drives downtrends. The bears just are not able to gain the traction that scares holders out of their positions. The FATMAAN names looked like they might lead this market lower when rotational action started on Monday but they are now finding support. There is dip-buying interest that is preventing a rotation that would likely be an index killer.
The thing that makes the market particular difficult is that there does not seem to be much economic concern although the Covid crisis is accelerating and is impacting the reopening of the economy. Market players are still looking past the shorter-term issues and it doesn't hurt that positive seasonality is likely to be a factor.
My game plan is to focus on shorter-term stock picking and not rush to build any longer-term positions. I'm holding about 50% cash and don't see many names I feel compelled to chase aggressively. There is good trading such as Electrameccannica Vehicles (SOLO) and Ayro Inc. (AYRO) , but those are shorter-term plays.
We have a positive open to provide a little squeeze action to start the day here on Friday but the big question is whether the market will avoid Covid pessimism.