Over the last couple of days of trading, there has been increasingly frothy action in high momentum names in the technology and biotechnology sectors. A few examples are Apple (AAPL) , Datadog (DDOG) , and Schrodinger (SDGR) . The indexes have not been doing much, but under the surface, there has been extremely strong pockets of momentum as aggressive traders have accelerated their buying.
The action has become quite frothy and was ripe for a reversal. News that Los Angeles County is likely to extend its stay-at-home orders for an additional three months appears to be the catalyst for a spurt of late selling. Optimism about reopening the economy has been building, but this news from Los Angeles makes it clear that the reopening is likely to be a very bumpy ride and the economic consequences will persist.
Technically this selling is not a major negative at this point. Plenty of charts need rest and if there is going to be additional upside, it is more likely to come on a wave of negativity by underinvested bulls, rather than due to supporters of a "V"-shaped recovery. This market needs to climb a wall of worry to move consistently higher and too many of the worries seem to have disappeared recently. Some of the bulls have become increasingly complacent, which seems irrational when we are in the midst of a crisis like any we have seen before. The bulls have justified their optimism on the basis of the huge stimulus, but it seldom is that simple or easy.
We have had some good stock picking lately and it is likely that there will continue to be a focus. Traders are trying to separate the winners from the losers in the post-pandemic economy and that is creating the best opportunities right now.
There is good potential for some additional downside at this point, but I'm looking for trading range action to eventually develop.
Have a good evening. I'll see you tomorrow.