Right now, we had a good example of something I’ve written about quite often, which is that momentum tends to last longer and go further than seems reasonable.
What is most interesting about the momentum is that it is mainly under the surface in individual stocks. The indices did well this week and breadth was solid but there was a real frenzy of buying in some “hot pockets.” SPACs, in particular, have been offering some great opportunities but there has been a wide variety of strong movers.
Breadth improved all day Friday and there were around 5,900 gainers to 1,600 decliners, but what is most impressive is that over 1,000 stocks hit new 12-month highs. That is extremely impressive when you consider that the FATMAAN names underperformed badly.
A few months ago the market talk was all about how the leadership was so narrow and mostly just a few of the big names such as Apple (AAPL) and Amazon (AMZN) . We have almost the polar opposite of that now, with broad strength and a long list of small-caps acting as leaders.
The action is so good it is difficult not to be concerned that it is frothy and ripe for a negative surprise. However, my experience is that anticipating disaster when the trading is this good is generally a mistake. The challenge is to stay with the positive action as long as possible and don’t start worrying about a sudden one-day crash.
What makes me particularly optimistic is that we have positive seasonality working for us and there are still plenty of stocks that are not wildly overbought. Hopes of a stimulus deal are building and the market continues to look past the current surge in Covid cases.
Have a great weekend. I’ll see you on Monday.
