I’ve been trashing the behavior of speculators around the darling mega-cap stocks Amazon, Apple, Microsoft, Meta, Netflix, AMD, Nvidia or Google for a while (e.g. here, here or here). As always, the talking heads in the financial outlets are picking up the idea only once it’s obvious and they won’t report anything “wrong” anymore.
Those stocks are currently assuming the role of the ‘parent’s basement’ that speculators move back into for a warm bed, home-cooked food and comfort after they ventured out into the cold world and lost everything on an idiotic business idea. At the moment, their rallies are certainly not a sign of an improving market – rather, they now serve as a new temporary or permanent addition to the long list of “value” that speculators flee into when brown substances hit the fan.
Shares of above stocks were up 0.5% to 2.5% yesterday, and as they have the heaviest weightings in the popular stock averages, pre-market trading pushed index futures into a gap-up, which was followed by a day of rally.
Note however that there is few conviction in this move, and these stocks are largely moving on retail sentiment and money rotation rather than systematic accumulation.
The tech mega-caps yesterday rallied on anemic volume ranging -24% (Apple) to -44% (Facebook/Meta) below average, pushing the market higher on a lot of hot air. This same effect can be spotted widely across the market, and is summarized when looking at the indices … for the Nasdaq volume to gauge -15% to -25% below average, there needs to be a serious lack of commitment. This also meets the criteria of a relief rally, a.k.a. a dead-cat bounce.
Of course, this dynamic can persist for weeks. In the market, anything can happen. Any day has to be analyzed within the context of new information arriving, and I will refrain from trying to predict the market direction. But as far as I’m concerned, I don’t care that much about what the indices do – until new strong leading stocks make their debut, I see no reason to expect this market will turn anytime soon into an environment conducive to making substantial profits.
What’s important to realize is that the market has been range-bound since about May or October last year, depending on how you count and on what index. Within this context, another rally like what we are seeing a possible start of right now could easily be expected after the temporary fear out of the recent debacle in the financial sector came into the markets.
However, as I discussed many time before, there is simply not enough firepower in this market to sustain a durable new uptrend, neither in the indices nor in individual stocks.
