After the plunge in the indices on Thursday, we have some very volatile, index-driven action. Stocks are moving in a highly correlated manner again with early breadth of nearly 10 to 1 positive. The opening gap was sold steadily but the dip-buyers showed up again just as the S&P 500 moved back to even.
For the last few weeks, the market has been very good for stock-picking. There was strong rotation between sectors and wild speculative action in small-caps. That changed Thursday when everything was dumped regardless of sector or individual merit. That correlated action is continuing but traders are trying hard to separate winners from losers.
Highly correlated action is much more common in weak markets. When the urge to sell hits, there isn't a lot of consideration about what to sell. Everything is thrown out the window. In positive markets, there is more emphasis on stock-picking as a way to gain an advantage.
At this point, the bounce back from Thursday's selling is looking mixed. So far Thursday's lows have held and there is a good dip-buying bounce. However, the way in which the early strength was sold, indicates that there were some bulls trapped and they are inclined to reduce positions when given a chance.
One name I've mentioned a number of times recently is Forum Merger II Corp. (FMCI) , which is a blank-check company that has been looking to acquire a plant-based food company. Friday morning Forum announced it is doing a deal with a private company Tattooed Chef. (Real Money's Tim Collins discusses the merger and trading opportunities here.)
Many traders had been speculating that Forum's target might be Impossible Burger, which would be of great interest given the way that Beyond Meat (BYND) has traded. While this was probably a very unrealistic expectation, it caused some disappointment and immediate selling of FMCI. I believe that once the deal is fully understood that it will look attractive and that the stock bounce back. I've been a buyer Friday of both the stock and the warrants.
Overall I'm not doing a whole lot as the market is not favoring stock-picking right now. Still, I expect that this index movement will give us new opportunities in individual stocks next week.