The market continues to act in a chaotic and confusing manner. The Dow Jones industrial average and S&P 500 reversed lower Tuesday, while the Nasdaq and Nasdaq 100 continued to run higher. Apple (AAPL) provided a huge boost to the Nasdaq brothers as it broke to a new all-time high. Other FAANG names participated as well.
Some of the wild speculation reversed, as airlines and bankruptcy plays lost their traction. Of particular interest was Chesapeake Energy (CHK) , which is filing Chapter 11 bankruptcy. CHK hit a high of $77.50 Monday and closed Tuesday at $23.75. The bankruptcy filing was well anticipated, but traders bought it regardless.
The Russell 2000 fund (IWM) did poorly Tuesday and breadth was 2100 gainers to 5350 losers, but there is quite a movement in single-digit stocks. My market scans show hundreds of stocks under $10 with good gains on increased volume. These stocks are attracting the new crop of day traders and the old-time day traders are joining the party, because that is what traders do.
Many market pundits view this sort of speculation as a warning sign. They are right that it won't last forever and there will be many small traders hurt by speculation in these "junk" stocks, but if you are a trader, then it is hard to resist some of this movement. It carries high risk, but that means it also offers high reward.
It is very easy to look at the action of the last few days and craft an argument as to why it is an indication that a market top is forming. There is no shortage of arguments, but the price action is still not cooperating with the negative narrative. There is a battle going on between the aggressive bullish speculators who want to keep on pushing and the skeptics and bears who want this market to correct at least a little bit. The likelihood is that it is going to hold up for a while longer, but we have to watch for more changes in the character of the action.
