Day Traders Diary

2/2/21

The major averages jumped on Tuesday, building on a strong rally in the previous session as concerns about a speculative retail trading frenzy continued to ease. The Dow Jones Industrial Average climbed 475 points, or 1.6%, to 30,687, for its best daily performance since November. The S&P 500 gained 1.4% to 3,826.31, pushing its two-day rally to 3%. The tech-heavy Nasdaq Composite popped 1.6% to 13,612.78, bringing its week-to-date gains to more than 4%.

The back-to-back advance in the broader market coincided with a sharp reversal in GameStop, the video game stock that captivated Wall Street with its massive short squeeze coordinated by a band of retail investors on social media. GameStop, fresh off a 400% rise last week, fell another 60% Tuesday. The stock has lost more than 70% of its value since Friday.

Other highly speculative investments popular with the Reddit crowd also plunged. AMC Entertainment dropped more than 41%. Futures contracts for silver, which enjoyed their biggest one-day jump in 11 years Monday, slid more than 10% Tuesday for its worst day since August.

Investors took it as a sign that the speculative mania from retail traders is unwinding, which is healthy for the overall market and investor confidence. The stock market suffered its worst week since October last week as many grew worried that the wild trading activity in those heavily shorted names could be contagious and spill over to other areas of the markets.

Meanwhile, investors will be following stimulus negotiations in Washington, after congressional Republicans made a counteroffer to President Joe Biden's $1.9 trillion stimulus plan on Sunday.

Longer-dated U.S. Treasuries succumbed to selling pressure amid the positive outing in stocks and renewed growth optimism. The 10-yr yield increased three basis points to 1.11%, and the 2-yr yield remained unchanged at 0.11%. The U.S. Dollar Index increased 0.1% to 91.07. WTI crude futures rose 2.3%, or $1.21, to $54.77/bbl.

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