Technology bulls continued on Tuesday to hit bears where they are most vulnerable, as heavily shorted stocks posted outsized gains. The Nasdaq 100 gained 0.3% to close at 16,010, states Jon Markman, editor of Strategic Advantage.
The stronger close for the benchmark erases the loss on Monday and sets the tone for the rest of the week. Bulls are in control of the market. Bears need to accept this and get out of the way. They should have clued into this on Monday when bulls executed short squeezes in many of the bears’ favorite positions.
Affirm (AFRM), Wayfair (W), and Roku (ROKU) soared Monday in frantic short covering. The gains continued on Tuesday as these issues posted gains of 11.5%, 8%, and 3.8%, respectively.
Skewering bears in thin, indecisive markets is easy. Bears often make the error of believing investors are rational beings. In reality, they are governed by fear and greed, emotions that normally preclude rational choices. In this case, professional money managers are behind their unmanaged benchmarks.
Pros need to pick up some beta quickly. Heavily-shorted stocks, and anxious bears, are easy targets. This behavior by pros was entirely predictable. They are even getting some help from buy-side analysts.
Researchers at Jefferies on Tuesday upgraded Affirm from underperform to hold. The tepid endorsement led to a wave of short covering at the opening. It got worse for bears from there. The close for the NDX above 16,000 clears the initial resistance.
Bulls should continue to punch toward 16,765, the record high. This advance could come sometime in early January. Support is now 15,596, the rising 20-day moving average.
