Traders and investors tend to look for parallels as they navigate the market action. It is often said that history may not repeat but it rhymes. There tend to be similarities in the way that bull and bear markets develop and eventually resolved themselves.
Those market participants that are looking for a roadmap to the current market action will be hard-pressed to find any historic precedents. Not only is the crisis that triggered the initially market collapse unlike anything anyone has seen before but the policy responses to it and the market response has been unique.
Many market participants shrug and attribute the buoyancy of the market to the massive fiscal and monetary stimulus. It is obvious there is a flood of liquidity out there looking for a place to go but the degree to which money is flowing into the growth names with aggressive valuations is surprising.
Yesterday, the split personality of the market was readily apparent in the Nasdaq 100 (QQQ) which was up 0.62% while the S&P 500 (SPY) fell 0.68% on 2-1 negative breadth. The outperformance of some big-cap names was even more pronounced when you consider the stocks breaking out on earnings such as Twilio (TWLO) , PayPal (PYPL) , and Fortinet (FTNT) .
Every market - bull or bear - tends to have pockets of momentum but they are much starker in the current environment due to the magnitude of the crisis that has been unfolding. Many market players have a tremendously difficult time reconciling the market action with there feeling about the economic damage that is being done. Clearly there will be winners and losers in an economy that is undergoing some fundamental shifts but the price action in the winners is steamrolling even the bulls.
This morning weekly unemployment claims will be announced at 8.30 am ET. There is expected to be around 3 million new claims. Tomorrow, jobs data for the month of April will be released and it is expected that there will be around 21 million jobs lost during that time period.
While these numbers far surpass anything anyone imagined six months ago, there has been a limited market reaction to the news. The argument is that it has already been fully discounted by the market which is looking ahead to the recovery down the road.
The bears scoff at the notion that this market is accurately discounting the profound economic damage that is being done but arguing with the price action simply doesn't work well. The thesis of many of the bears is that reality will set in eventually but that is a tough stance when there are pockets of momentum that look like a bull market at all-time highs.
Last week there was similar frothy action that ended abruptly so there will be some traders looking for a similar reversal today but trying to fade the breakout momentum that has been developing is a very difficult trade.
This is a truly unique market and there aren't any clear lessons from past bear markets that can be applied. My best advice is to stay reactive and don't try to predict what may happen next.