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Many tech stocks have been on fire since the start of the year as inflation expectations have been steadily declining. Last week, most tech stocks experienced a significant decline – meaning a 10% to 20% drawdown.
Nothing goes straight up or down. It is just as normal to have pullbacks and shakeouts during rising markets just like it is normal to have rips during declining markets. Everyone received what they wanted last week. The bulls got their pullback and therefore potentially better risk/reward entries. Let’s see if they step up next week. The bear got their crack in many tech names. Can they follow through next week? A lot will depend on interest rates and the US Dollar which have been perking up as of late. January CPI inflation report will be released on February 14th at 8:30am ET. Stocks used to sell off when Fed officials spoke and inflation data is released. Now, they are having their biggest rallies at those events. Until this changes, sentiment remains bullish and the latest rally has a chance of lasting longer.
Crude oil had a major bounce last week. Good news for energy stocks, bad news for tech. Higher crude oil means higher inflation expectations.
The small-cap ETF – IWM, tested its 20-day EMA and it managed to hold above it. If IWM loses 188, it can drop to 183. The S&P 500 is still riding above its rising 20-day EMA. If it loses 405, it can test 400.
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