Predictions of a market top are growing louder but the indices are still showing few signs of concern. There has been some rotational action recently that has caused some shifts in the internal action but it has not persisted. The Nasdaq 100 ETF (QQQ) , which is the home to the key FATMAAN names, suffered a three-day selloff but then quickly rebounded and retest recent highs.
While there is some concern about rotation out of expensive 'growth' names and into cheaper 'value' names it looks more like a rational move by fundamentally-driven investors rather than impulsive, emotionally driven reactions by traders. There is still very healthy speculative action taking place. A good example this morning is vaccine maker CureVac NV (CVAC) , which IPO'ed on Friday at $16. It closed the week at $55.90 and is trading at $92 this morning. That is an unusual situation but it illustrates how aggressively traders are chasing certain 'hot' stocks.
A good illustration of the bear's view right now can be found in Barron's this weekend. In an article entitled, "It's Time To Build Cash to Take Advantage of Stocks' Coming Tumble", the author sets forth the key negative arguments. First, that the indices have made a very large move since the March lows. Second, sentiment is frothy, and third, there is a disconnect between fundamentals and valuations. The market has shown little concern about the impact of the Covid-19 crisis on the economy and at some point that may not continue.
The biggest problem with the bearish arguments is that they are so obvious. Anyone that follows the market is very aware of the reasons what this market should go do. The negative factors are no mystery. The big issue is trying to determine when they might matter. Back in February, the market totally ignored the Covid-19 crisis for weeks but then one day it suddenly mattered and the indices went into free fall. Many bears are looking for a replay of that action but instead, they have been squeezed and tormented by a market that refused to embrace the obvious negatives.
There are headlines this morning of a resurgence in Covid-19 cases which is causing pressure on travel stocks. The dollar is weaker and that, combined with Warren Buffett's entry into gold miner Barrick Gold (GOLD) , is helping the precious metals sector.
My primary focus is still on stock picking. When stock picking stops working then that will be the time to become more defensive. I see too many individual stocks on my screens acting well to justify a rush for the safety of cash.
This market will eventually correct and it will probably happen rather abruptly, but as famed investor Peter Lynch once wrote, "Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves."