Yesterday stocks reversed direction big time. After days of pounding lower the Standard & Poor’s 500 gained 1.89% and the Dow Jones Industrial Average added 1.17% The NASDAQ Composite climbed 3.41% and the NASDAQ 100 tacked on 3.29%. Even the small cap Russell 2000 gained 3.05%.
On those numbers I’d say the days action looks like a big oversold bounce off of a truly terrible January.
But dig a little deeper and it looks like something else–or maybe additional somethings–was going on.
The stocks that had been beaten down most severely for 2022 to date didn’t just rally. They roared higher.
Oatley Group (OTLY) gained 6.92%. EVgo (EVGO) and Checkpoint (CHPT), two crushed electric vehicle charging stocks, gained 10.59% and 9.49%, respectively. American Superconductor (AMSC) climbed 11.26%. RingCentral (RNG) added 8.56%. TeleDoc (TDOC) over up 8.96%. Enphase (ENPH) and competitor Solar Edge Tech boogie were higher by 13.41% and 12.33%, respectively.
To me these gains in these stocks had all the earmarks of short-covering. These stocks have been among those sold most heavily in the January correction. And traders have built up big short-positions in them. Which they’d prefer NOT to take big losses on if the market should move higher.
But another group of stocks moved up strongly yesterday too. And for what I think is a different reason. Among the winners for the day were PayPal (PYPL), up 5.15%, Veeva Systems (VEEV) up 4.41, NXP Semiconductors (NXPI) up 8.44%, Chipotle Mexican Grill (CMG) up 5.36%, Marvell Technology (MRVL) up 7.66%, and Nvidia (NVDA) cup 7.21%. I would characterize this group as among the names you’d like to be holding when the stock market, eventually turns. I think what we were seeing in these stocks was “anticipatory buying” by investor who Fear Of Missing Out when the market does rally from this sell off kicks in.
I’m not willing to call a bottom after yesterday’s action. It was a positive day but I can easily imagine more selling as we get closer to the March 16 Federal Reserve meeting that’s likely to result in the first of a series of interest rate increases.
I think the clearest conclusion I’d draw from yesterday’s gains is that we’re entering a period–before the Fed meeting and likely in the weeks afterwards–of even higher volatility.
Which, at the moment at least, isn’t reflected in the CBEO S&P 500 Volatility Index (VIX). Today, February 1, the VIX “fear index’ dropped 10.23% to 24.83. Still do early to buy VIX Call Options for another volatility trade, but time to watch for sure.
