Stocks have bounced back some on Thursday morning on 3-to-1 positive breadth with big-cap technology names leading. Banks are shrugging off the very poorly timed comments by Janet Yellen about no plans for additional deposit insurance, but there still is a high level of uncertainty about a variety of economic issues.
While it is very easy to make bearish economic arguments, it is the price action and a wave of liquidity that is giving the bulls an advantage. Much of that cash has been flowing into names such as Nvidia (NVDA) and Microsoft (MSFT) , which are acting almost like money market funds as investors look for a safe place outside of banks to park excess funds. It is a very dangerous game, but it is working for now.
From my perspective, this market is being driven from the top down by economic issues and liquidity. It is headlines that are driving the action, and when that happens, stocks tend to move in tandem without much regard to their individual merits.
My trading and investing style is to find smaller, less-known stocks that possess something special fundamentally and then buy aggressively when there is good technical action. As momentum develops, the stocks will be discovered by other investors and send them higher.
That style doesn't work very well in certain markets. In the current market, however, no one cares too much about fundamentals, and positive technical action never really develops very well. There are always some big-cap names that attract flows, but that has little to do with valuations.
I'm positive that conditions for the type of trend trading in individual stocks that I favor will eventually develop, but I will have to stay extremely patient. I can do some trading with shorter time frames and focus on index-driven movement, but this is no market for old stock pickers like me.
What I am doing is trying to refine a list of stocks that I think will eventually be good trend trades when market conditions shift.
Several examples are names I've mentioned in the past, such as Beyond Air (XAIR) , Origin Materials (ORGN) , Rain Oncology (RAIN) , Sensus Healthcare (SRTS) , Humacyte (HUMA) , CECO Environmental (CECO) , Hims & Hers Health (HIMS) , Karuna Therapeutics (KRTX) , LifeStance Health Group (LFST) , LianBio (LIAN) , Xeris Biopharma Holdings (XERS) , Ocular Therapeutix (OCUL) , etc. I may trade some of these names very short-term while maintaining positions, but I mostly want to track them so that I can become very aggressive very quickly when I think the time is right.
I don't make big market predictions and timing calls, but I believe the risk of another leg down is quite high as the danger of a recession is increasing. Of course, I'll be happy to change my mind if the charts start to look better.
(Please note that due to factors including low market capitalization and/or insufficient public float, we consider several of these names be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.)