Covid-19 cases are hitting record levels causing economic slowing and end of the quarter pension allocations are likely to result in massive rotation out of equities and into bonds. Despite these obvious negatives, stocks are indicated higher in the early going this morning.
The bears have been growing louder as they proclaim that the 'end is near' from this massive rally off the March lows. There were two drops in the indices last week on Wednesday and Friday but so far support is holding and there continues to be a strong interest in dip-buying.
There are two big positives that are offsetting the obvious bear case. The first is the liquidity caused by massive fiscal and monetary stimulus. There is still plenty of buying power out there. There are billions in cash held by folks that missed out on the move off the March lows. These folks don't want to miss out on the next set of great bargains. Rather than worry about being caught in downside action, they are worried about not being able to buy low enough.
A second related issue is the speculative trading that is taking place. The trading in smaller and riskier stocks is the most aggressive it has been since the internet bubble in 1999-2000. Many market timers see this as a massive contrary indicator that is sure to end badly but what they are missing is how long such action can persist. The combination of liquidity and speculative interest is very powerful and it doesn't just suddenly disappear.
The view of more conservative market players is that it is time to play stronger defensive and be ready for some downside. The view of more aggressive market players is that there are plenty of trades still working and it is a good time to keep pressing and making money while we can.
My inclination is to stay with aggressive trading of individual stocks while they are working while at the same time being quick to cut stocks that are breaking technical support. I have a list of longer-term names that I want to buy and will be doing so incrementally into weakness.
Keep in mind that we are at the end of the second quarter right now and much of the action is driven by positioning for the months ahead rather than the current headlines. The Covid-19 news is troubling even if the number of deaths is dropping but market players are more optimistic than many of the pundits and 'experts'.
This has been a great market for the trading of individual stocks. Although that might narrow if the indices come under pressure again that will remain my focus until it stops working.