Corrective Action Spreads Beyond Tech Amid 'Maelstrom of Selling'
The great divergence in tech and AI is expanding to the broader market. Here's my game plan in this very difficult environment.
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The S&P 500 and DJIA have been covering up very poor market action in AI, technology, the Magnificent Seven, and other areas for a while. The easiest way to see it is to compare the chart of the Mag 7, which peaked on October 29, 2025, and is down 10% since then, to the charts of the DJIA and S&P 500, which hit new all-time highs this past Tuesday.
That is classic divergence action, and it is understated when we dig deeper and look at most of the stocks that were leaders in 2025. For example, Microsoft (MSFT) is down 25% from its highs, and leading AI play, Palantir (PLTR) , is down about 38%. There is bear-market action in sectors such as software, and AI development has been a wrecking ball recently, as various industries, like financial services and coding, become vulnerable to the technology.
Shifting Rotations and Safe Havens
Many market pundits and analysts have taken comfort in the fact that rotational action has helped to keep the indexes looking technically healthy. There was strong rotation into the Russell 2000 (IWM) , which peaked on January 22, and that drove positive action in many secondary stocks. Some retailers, such as Walmart (WMT) , are also providing a safe haven. However, corrective action in technology has intensified over the last two days and is now spreading to other sectors.
After the ugly action on Thursday, Investors Business Daily reduced its suggested market exposure to 40% to 60%. They noted seven recent Nasdaq distribution days on higher volume and also pointed to the S&P 500’s breach of the 50-day simple moving average.
Waiting on the Inflation Catalyst
The market is technically in poor shape, and the risk of further liquidation is significant. To make matters worse, the January CPI report will be released at 8:30 am ET on Friday. The forecast is that consumer-price growth slowed to an annual pace of around 2.5%, however, there is a historical tendency for prices to spike in January and there is concern about a hotter-than-expected reading.
A hot CPI report will hit bonds and further delay the potential for an interest-rate cut. The recent jobs report was better than expected, but that did not help the market as it created increased concern about inflationary pressures.
My Game Plan
It is an extremely tough market environment right now, with some deep correction occurring and few signs of significant support. My game plan is to stay patient and watch for favorite names to find some technical support.
Many good, high-quality stocks are caught in the maelstrom of selling and are compelling values, but that doesn’t matter when there is heavy top-down ETF and index selling. It creates some mispricing, but the timing of buys is extremely difficult.
We have more selling pressure on Friday morning as investors await CPI.
At the time of publication, Rev Shark had no positions in any securities mentioned.
