MarketSurge powers the charts in this video.
Last weekend, we discussed the market becoming a bit frothy and setting up for a potential shakeout. This is exactly what we saw. Those pullbacks are normal during bull markets, and they create better entry opportunities near rising 20, 50, and 100-day moving averages.
When the market is in a pullback mode, a 1-2% drop in a popular index like the Nasdaq 100 could coincide with a 20% drop in a high-momentum stock. We saw that in recent high flyers in robotics, quantum, crypto, and nuclear last week. In fact, the behaviour of high-momentum stocks is a major sign of what to expect in the near term. If they just go sideways and continue to tighten up and set up, there’s probably a bounce around the corner. If they got pummeled, there’s likely more volatility ahead.
Typically, corrections in bull markets happen through sector rotation. Energy and metal stocks made a strong push last week. Can we see another group step up next week? Solar stocks seem to be setting up, but it is rare to see only one industry lead when the rest of the market is under pressure. The odds are we will see more choppiness.
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