As quickly as they spiked, worries on Wall Street over a potential implosion of China’s Evergrande eased this week, freeing speculators to go about their normal business.
Writing in Real Money recently, James "Rev Shark" Deporre said concerns over Evergrande haven’t completely gone away, but investors have pivoted back to the Federal Reserve. “After suffering a drubbing on Monday, the market managed only a very mild recovery on Tuesday,” Rev Shark wrote in recent Real Money column.. “Concerns about Evergrande continued to swirl, and many market players were concerned about the technical damage that has been piling up for a couple of weeks now.”
With major indexes on the canvas Tuesday, Deporre said there was some surprisingly strong speculative trading in secondary stocks. “This action is not at all reflected in the indices, but there was quite a bit of 'hot' money looking for a place to go,” he said. “The negative sentiment that was hurting the indices didn't slow down the small traders that were looking for action.”
In highly severe market corrections, there tends to be very correlated selling, as traders upend their portfolios and bids disappear. “There usually is very little appetite for high-risk trades when the market is undergoing a meaningful correction,” Deporre said. Because that wasn’t the case this week, “technical support could develop quite quickly.”
Deporre said he expected to see a continuation of strong pockets of speculative action.. “The cannabis names will be of particular interest as there has been progress in Congress on the SAFE Banking bill, which will now move to the Senate for consideration,” he wrote.