Momentum Monday – SPAC Mania while Mega-cap Stocks are Sleeping

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The main stock indexes continue to make new all-time highs while the majority of the largest companies are underperforming. Apple, Amazon, Facebook, Nvidia, Netflix, Facebook haven’t advanced an inch for the past three months. Google has done a bit better but nothing to rave about. The lackluster price action in mega caps can mean one of two or possibly both things:

  1. People are seeking more risk and therefore, selling the biggest and strongest companies and venturing out further on the risk curve to capture a higher return.
  2. The biggest companies can wake up and try to catch up with the indexes for the rest of the year.

In the meantime, the market is pricing in a potential normalization in the economy. If you look at the best performing stocks ever since Pfizer and BionTech announced their working vaccine, you will notice that it is all about the old-economy – energy, transportation, financial, leisure, industrial metals, retailers. All sectors that were hit hard in the first half of the year, have been shining as of late while intererst rate have perked up and the U.S. Dollar has been diminished. 

We continue to see elements of mania in select pockets of the market. A few weeks ago, it was all about electric vehicles and anything related to clean-tech. So many of those stocks doubled and even tripled in a couple of weeks or so. Many have since pulled back substantially, but still remain in uptrends, so we will keep an eye on them if they offer an excellent risk-to-reward entry. The manic hot money has most recently shifted to SPAC stocks. SPACs are special purpose acquisition companies, essentially blank check companies formed to merge or acquire with a target business or in other words, bring a promising private company (often a start-up) public in the fastest possible way. DKNG and SPCE were among the first companies that use the SPAC model to become public. They have been followed by hundreds more. I’ve already highlighted the most interesting and promising names – FEAC, LAZR, IPV, TRNE, LCA, SBE, MP, JWS, IPOB, IPOC, etc. I am sure I am missing many and I will discover them along the way. I am not going to sugarcoat it – there’s certainly a lot of froth in the space but as active traders, we have to be paying attention to where capital is flowing and be in that space, so we are doing exactly that but in a measured way.

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