Against all expectations, the NASDAQ Composite has led the last few days of rally with relatively strong volume. This would be great, if there were actual opportunities to capitalize on. Unfortunately, instead of presenting us with new merchandise, the last few days brought us back the same old songs – the stars of the last bull, but heavily tainted.
What rallied the most on Thursday?
This might seem like a déjà vu, but once again all too familiar names appeared on my list of the strongest performers: Tesla (TSLA), Cloudflare (NET), Datadog (DDOG), Pinduduo (PDD), Li Auto (LI), Boot & Barn (BOOT), Open Door Tech (OPEN), Genius Sports (GENI), AirBnB (ABNB), Seagate (STX) or Matterport (MTTR).
What’s the problem with these? They have all corrected 50-85%, and all of them still have gigantic amounts of trapped buyers hanging over them like Damocles’ sword. Check out the chart below, averaging the price movements of these stocks over the last 1.5 years. Tesla bounced 57% since January, 11% yesterday. It also has 61% of selling supply ‘suppressive fire’ trained at it.
There is a lot of frenetic dip-buying and short-covering going on in these stocks, while the markets are factually propped up by late-cycle capital good, industrial and commodity stocks among the likes of Caterpillar (CAT), United Rentals (URI), Hexcel (HXL), Chevron (CVX), Exxon (XOM), steels (STLD) and a small gang of thinly-traded, climactic and overcrowded semi stocks.
Right now, indices are heavily extended to the upside, but the strength is deceiving. On a day the NASDAQ is up 1.76%, rallies that should hold in gems such as MBLY are being sold into.
Indices need to digest … I just fear that the this current action is the last gasp and will in a few days or weeks turn again into a massive bull trap, instead of a constructive digestion. This is especially true now that the NASDAQ is close to 3 types of resistance – its down-trend line, its 200DMA, and a horizontal danger zone of price reversals experienced since November.
This will probably remain a resource-stock heavy market for the time being.
