The market rallied on Monday, with technology stocks leading the way. The move was largely driven by Twitter (TWTR) following news that Elon Musk had taken a stake of more than 9% in the company. The Nasdaq 100 (QQQ) , which is heavily weighted with technology names, jumped over 2% and stopped just short of its 200-day simple moving average.
The Musk buy of Twitter stock is a good example of individual stock-picking that I have been discussing lately. This was a buy based on fundamentals and valuation and took place without regard for Ukraine, inflation, a recession, or any of the other many negatives that the bears have been warning us about.
One of the primary negative narratives right now is that the market is nuts. How can stocks act so well when we have war, inflation, and a potential recession? The answer is that the bad news has already been priced into the market to a great degree.
Although technology stocks have had a good rally, Investors Business Daily notes that remarkably few technology stocks have broken out of bases. Stocks such as Meta Platform (FB) and Salesforce.com (CRM) have bounced off recent lows, but they are still in poor shape technically and would need huge gains to retest the highs that they hit back in November.
While the move off the March lows has been substantial, there are very few stocks testing highs or breaking out. There were only 190 new 12-month highs Monday and around 100 new 12-month lows.
What we have is a market that has produced a big and energetic bounce. It has been strong enough and persistent enough to provide some comfort that the lows will hold and that this is not just a counter-trend rally, but many bears vigorously disagree.
The bearish narrative is that this is just a huge bear market rally, and as the market reflects on the issues of inflation and recession, it will roll over, and we will have some very tough trading.
Perhaps, but currently, the price action is good, there is plenty of support, people like Elon Musk are finding good values to buy, and charts are developing.
In the short term, we may need some consolidation again, but at this point, it's the bull's game to lose.