Indices Can No Longer Hide the Damage
There is deep corrective action taking place in parts of the market but there also is strong rotational action.
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It was another ugly market session on Friday but this time the selling expanded to a greater number of stocks and the indices were unable to hide the losses. This time, both chips and the Magnificent Seven fell in tandem, and breadth was around 40% positive.
Dip buyers showed up at the open but as is often the case with severe gap downs, they were overanxious and the ensuing bounce was sold fairly fast. Things rolled over and were weak in the afternoon. There was some last minute volatility due to option expiration but the action was not indicative of a major turning point.
We can gain some insight into the action by looking at new 12-month highs and lows. They were about even but the new highs came from defensive names, consumer cyclicals, financials, biotech and energy. Apple (AAPL) was the only significant technology name on the list. By comparison, the new 12-month lows list had dozens of technology names with SpaceX (SPCX), SK Hynix (SKHY), Oracle (ORCL) and Netflix (NFLX) leading the parade.
There is deep corrective action taking place in parts of the market but there also is strong rotational action that is holding up the indices. This is not a market where buyers are dumping everything and heading for the sidelines. They are dumping technology but are still willing buyers in other sectors. The indices are misleading when there is this sort of action.
Setup into Tech Earnings
This action is creating an interesting setup going into a slew of technology reports in the next two weeks. The key question is whether expectations have been lowered and investors may be more forgiving of a less than perfect earnings report. Also, guidance and capex spending in particular will be important. Will there be some pullbacks in spending and are profit margins holding up?
My game plan remains the same. I’m in no rush to buy but am closely tracking quite a few names into upcoming earnings reports. Some I will look to play in front of the reports and others I’ll focus on trading after the news. I don’t have much interest in betting on the reaction of mega-cap technology to their reports but the volatility after the news may be good for some trades.
Have a great weekend. I’ll see you on Monday.
At the time of publication, DePorre had no positions in any securities mentioned.
