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The indexes ran to their February highs, gapped slightly above them to force the last remaining shorts to cover and cause some FOMO; then they reversed lower. Breakouts stopped working in the past few days which is a big sign that the market is stalling and in need of some consolidation. It’s normal to see a reaction after multiple days of rallying from the bottom. The question is which stocks will make higher lows and continue higher and which ones will keep pulling back to new lows. Semis and financials already tested their 20dma. So far, the bounce attempt is very tepid. Retailers broke below their 20dma and are looking the most vulnerable. The latter makes sense. Raging inflation will impact not only people’s purchasing power but also their willingness to spend.
The main indexes, SPY and QQQ printed inverse weekly candles. It would not be the worst thing in the world if QQQ pulls back to 350 and SPY to 445-440 and let their rising 20-day moving averages catch up with price.
Don’t get overly bearish. This minor pullback in the indexes seems like another sector rotation. The weakness in semis, banks and transportation stocks on Friday coincided with strength in biotech. 63 stocks went up 10% or more last week vs 23 that went down 10% or more (priced over $15, average daily volume of 500k shares). Looking under the surface, I still see plenty of constructive long setups. It’s a different question if they work. If the indexes are weak, many won’t go past the first day’s breakout.
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