The press will report that the markets were quiet today. Volatility was relatively low and aside from a deal or two, nothing of import happened. But that would not be true. The natural progression of a distorted market continues apace as we reach its market-logical conclusion.
Today’s big winners are oil service, which will enjoy months of earnings expectation upgrades, and the momentum/short squeeze stocks, few of which have news but are ramping sizably.
It is the end of the quarter and what has been working best, namely big cap industrials, speculative mid-cap technology and momentum favorites are mostly all being marked up. “Overvalued stocks” like LULU, OPEN, TZOO, NFLX, YOKU are ramping like there is no tomorrow. What you are witnessing is the final bit of stopping the losses made by those who bet that reality would finally be apparent in the stock market–and put their money where their mouths are. Those unAmerican doubters had about a minute to take a profit before losing again in the face of unlimited free capital and the sentiment that surrounds it.
There’s been lots of speculation about the end of QEII and the beginning of QEIII or more. Many say that it cannot go on and that markets will suffer once complete. But if QE ends, that means not only will banks be “on their own”, but also the government will be too. How can they finance their spending without massive FED buying of each and every Treasury issuance? The smart money says that QE cannot and will not stop anytime soon–whatever it may be called and however they get it done.
Should you buy these short-squeeze heroes? Sure. But make sure you don’t hold them too long. Or overnight for that matter. As the new quarter begins, they should give back between one-third to one-half their recent gains quickly. So be prepared.
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