While the broad market has been exhibiting some minor weakness for a few days, there is fascinating action in a number of smaller stocks that are creating substantial market drama. Social media has targeted a number of stocks with very high short positions and is creating a massive squeeze.
The short squeeze action is taking up a tremendous amount of bandwidth and has even pushed earnings news aside. A good report from Microsoft (MSFT) is helping the Nasdaq, but it doesn't seem to be doing much for the overall market right now. Conditions are good for some 'sell the news' action and there looks to be a tendency to do so this morning.
Tonight there are earnings reports due from Apple (AAPL) , Facebook (FB) , and Tesla (TSLA) . Normally this would dominate the stock market coverage, but everyone is fascinated by the power of the small investors to go after a major hedge fund. Melvin Capital, which had a huge short position in GME, has apparently closed its position, but it doesn't look like the mob is going to relent in this game very easily. They have already had great success and are likely to transfer their efforts elsewhere.
Although some market professionals view this action as unhealthy, the positive spin is that retail investors are a very positive force with plenty of liquidity that will allow this speculative frenzy to continue. The old pros see this as a contrary indicator, but market strategists like Tom Lee see this as a market positive as this strong demand keeps driving stocks higher.
The challenge of this market is to stay on top of the themes and the individual stocks that are moving. For those that don't enjoy aggressive trading, there are opportunities in individual stocks that are drifting lower to support levels. Many names have been languishing with all the attention focused on this 'gamma squeeze'. There were reports that some of the long positions that hedge funds favor are under pressure as money is shifted to cover losing short positions.
This continues to be a market for aggressive stock picking. It is narrow, and there are some problems with the indices, but I plan to stay focused on the speculative action while also looking to inch into some quiet names that are finding support and setting up technically.
The reaction to earnings tonight will set the stage for the next market move, but the social media mob isn't going away and will find other opportunities to create some wild action.