Strong speculative action continues on Wednesday morning. Breadth is running around 2 to 1 positive, and there is strong trading in many small-caps, biotechnology, and growth names. This feels like an old-fashioned bull market in certain areas of the market right now, but you can’t help but wonder how much longer it will last.
While traders continue to shake off the bear market gloom, bonds and interest rates are moving strongly in the wrong direction. The 20+ Year Treasury Bond Fund (TLT) is testing the trend line off the June lows as a number of Fed members sound increasingly hawkish. The chances of another 0.75% hike jumped sharply in the last 24 hours.
Since 2008-9, the single best piece of market advice is ‘don’t fight the Fed.’ That worked extremely well as the Fed maintained a dovish bias for a very long time. Now that the Fed is hawkish, market participants are much more inclined to fight the Fed. The current justification for ignoring the Fed’s hawkish tone is that the market is looking ahead six months or so, and by that time, the Fed is sure to be dovish once again.
That is the argument the bulls are using, but I think the market may be misreading how hawkish the Fed really is. The bond market is telling a different story than the stock market right now.
Currently, I’m trying to take advantage of the positive price action. Uber (UBER) , which I highlighted yesterday, has good follow-through. My Stock of the Week, Aehr Test Systems (AEHR), is still running hot. Various biotechs like Myovant Sciences (MYOV) , BELLUS Health (BLU) , and Amylyx Pharmaceuticals (AMLX) are doing well. Even long-time favorite AMMO (POWW) is acting like a momentum name now.
One new buy today is tiny biotech Ocuphire Pharma (OCUP) which has patent news on a drug that is used to reverse dilution of the pupil.
Market participants are not worried about the big picture right now and are staying very aggressive with small-caps and secondary stocks. It is unlikely to last much longer, so enjoy it while you can and be ready to lock in some gains.
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