Since stocks hit bottom in March, the indices have attempted to roll over several times. The drop that started in early September has been the best effort so far but just when it looks like downside momentum could build, support kicks in and concerns about missing out on upside begins to build.
Early Friday there were concerns that the indices could continue to pull back but some minor buying occurred and stocks rallied the rest of the day. Many of the V-shaped bounces we have seen in the market have developed exactly in this way. A small and minor bounce occurs and the longer it lasts the more concern there is about missing out.
The bounce that began Friday is gaining further traction Monday morning. Overseas stocks were mostly higher and there is hope that Congress could still make a deal on fiscal stimulus.
The political battles over the Supreme Court, Trump's taxes, and the upcoming debate are intensifying but the market is unconcerned about these issues at this time. The big political danger that lies ahead isn't a victory by one party over the other but that the election will be very close and that there will be no immediate winner. Market players are very aware of this risk and it is likely to matter at some point but so far it is not causing a run for safety.
There was an interesting report from J.P. Morgan this weekend that speculated that cash levels are likely to remain high because there are so few safe hedges right now. The traditional defensive plays are not working and therefore cash levels are building. This helps to provide underlying support for the broader market and is just part of the unusual dynamics that are in place.
In the week ahead my primary focus will once again be on rotational action and stock-picking. Last week the rotation hit SPACs, biotechnology, and other stocks that had been safe havens as big-cap technology corrected. However, that shifted again later in the week and many of the names that had been hit came back on Friday.
Large-cap technology and FATMAAN names looked much better on Friday and momentum buyers are now looking for a follow-through day to confirm that the uptrend in the Nasdaq 100 (QQQ) is now back on track.
The main issue that many bears seem to be overlooking is that many stocks never were as overbought and as extended as the big-cap technology names. They have some decent support and potential upside into third-quarter earnings reports in a few weeks. There are many names on my radar that I will be watching into those upcoming reports.
We have a good, old-fashioned Monday morning gap-up open on the way. I'll be looking to add to positions as charts develop.