FOMO, Positive Earnings Reports Can Combine to Take Market Higher

The corrective action that hit the market over the last six trading sessions was forgotten on Monday. The Russell 2000 (IWM)  led the rebound with a jump of nearly 2% and the Nasdaq 100 hit a new all-time closing high. Seventy-five percent of stocks were in positive territory, but there were only about 130 new 12-month highs.

There wasn’t any new or surprising news to drive the strong action. Worries about bad loans at regional banks and a potential trade war with China were either forgotten or overlooked. There are still plenty of good bearish arguments, but investors are apparently more worried about missing out on further upside than they are about valuations and economic slowing.

The biggest positive on Monday was the resumption of strong speculative activity in secondary stocks. There was an extremely long list of stocks moving up more than 10% and only 15 of the 100 stocks in the Nasdaq 100 had losses.

The question now is whether the market can build on this strong move. It was strong enough and broad enough to create a hefty dose of FOMO, and if we see some good earnings reports in the next couple of weeks, there will be some very strong support.

As I wrote on Monday morning, there is a group of bulls who are looking for very strong market action as we move into the seasonally strong period in November and December. Fund managers Paul Tudor Jones and Dan Niles are both on record predicting a market melt-up as the AI group gains further traction. While some bears are already sounding the alarm about a bubble, there is a group of bulls saying that we aren’t there yet.

It is a great market environment for stock picking in smaller stocks, and with some good earnings reports likely on the horizon, I expect some good trading opportunities to arise.

Have a good evening. I’ll see you tomorrow.

At the time of publication, DePorre had no positions in any securities mentioned.