'Junk' Stocks See Surge as Magnificent Seven Loses Safe Haven Status
Conservative investors have been shut out of the action as earnings news looms.
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The market fizzled out after a strong start on Monday but breadth stayed robust and the Nasdaq and S&P 500 hit new all-time highs. Momentum stalled as the day progressed and the close was weak. Buyers are tired of trying to keep pace with this relentless action and are in need of a rest.
What is most notable about the action is that there isn’t any significant news flow. The weakness is due to extended market conditions and a lack of good entry points. There is likely a big crowd of potential buyers out there, but they want to buy on weakness rather than on strength.
A few days of weak action would be celebrated by both bears and bulls. While there are still pockets of speculative action in small stocks, more conservative investors have been shut out of the action as the Magnificent Seven MAGS does not feel like a safe haven with earnings news coming soon.
There has been some unusually strong trading in "junk" stocks like Opendoor Technologies OPEN and Offerpad Solutions OPAD, but it is not spilling over to the broader market, although there is still plenty of strength. There has been some talk about this being bubble action, but it has a much different feel than prior bubbles like the SPAC frenzy and the internet bubble.
We have some big earnings coming up and we’ll see If good reports can attract even more buyers. It is going to take some big numbers and very positive guidance to excite buyers at this point but the momentum has been tremendous and it tends to be sticky.
Have a good evening. I’ll see you tomorrow.
At the time of publication, DePorre had no positions in any securities mentioned.
