The Speculative Bulls Are Back, and Climbing a Wall of Worry

The market did an excellent job of shaking off recent volatility and AI-related concerns on Monday. Most notably, there was very strong speculative action in smaller stocks. 

About 155 stocks in the Nasdaq Composite gained more than 10%. Market breadth was solid, with 62% of stocks in the green, but only about 150 were at new 12-month highs due to recent selling pressure.

The Magnificent Seven  (MAGS)  looked magnificent again with a gain of 3.2% while the Russell 2000 managed to jump 1.85%. The biotechnology sector  (IBB)  hit a new all-time high.

This is typically Thanksgiving week trading, although usually it doesn’t occur on Monday. Technical conditions were good, however, and traders were anxious to go after some of the more speculative names.

The issue now is whether there is upside follow-through. Market players are growing more confident that the Fed will cut rates on December 10, and the economic data due on Wednesday is not likely to upset that belief unless expectations are wildly wrong.

The difficult action last week, especially in the AI sector, helped to build a wall of worry. When that happens, investors are worried about a variety of things, but when they see positive price action, they feel some fear of missing out and start making incremental buys. The more they buy, the more the price action improves, and FOMO ramps up even more. Some of the best upside moves occur when there are very obvious worries and concerns.

I don’t want to sound overly bullish, but the corrective action created very good conditions for upside, and the fact that it is Thanksgiving week does quite a bit to help boost sentiment. I’m sticking with a trading mentality right now, but I’ll be trying to build positions as the charts show that they can hold support.

The bulls are back in town, and they are climbing a wall of worry.

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