Rotational Reverberations Roil Wall Street

It was another difficult day for the market Thursday as small-cap stocks accelerated to the downside after showing good relative strength for six straight days. The Magnificent Seven names also had a rough time, but after the worst day since 2023, the action wasn’t quite as bad for the Nasdaq 100, which lost about 0.8%

Breadth was horrendous with around 1,650 gainers to 7,600 decliners but there were only about 100 new 12-month lows because the recent rally was so sizable that there is still a good cushion of support underneath. Small-caps always drive breadth, so it reflects the problems there.

This action isn’t being driven by any specific news. The market is struggling with a shift in character that is driven by the likelihood of interest-rate cuts, concern about how technically extended and expensive many big-cap technology names have become, and worries about upcoming earnings reports.

The small-cap rotational action was overheated. The move was too big and too fast, which is triggering profit-taking by long-suffering small-cap investors who haven’t had sizable gains in a long time. There isn’t much support on the Russell 2000 chart, but if we are going to see a healthy bull market, then we should see some support kick in fairly soon.

Most of this movement has nothing to do with fundamentals and appears to be quite random. It is primarily a function of market players trying to position themselves for what they think will happen next in the cycle. We had a long period of narrow big-cap strength, and that is now shifting, but it is a very messy process and will mislead many folks as to why it develops.

I remain optimistic about the opportunities that are developing for stock pickers.

Netflix NFLX earnings are out, and the initial reaction is negative, with the stock down in after-hours trading.

Have a good evening. I’ll see you Friday.

At the time of publication, Rev Shark had no positions in any securities mentioned.