MarketSurge powers the charts in this video.
We are in a strong bull market. Even exceptionally sound markets experience the occasional pullback that shakes the exuberance out and resets the bases for many stocks. The price action last week tells us that we might be entering such a corrective, consolidation period. All of a sudden we started to see an increasing number of stocks sell off or not follow through after decent earnings – MDB, MRVL, AVGO, COST, CRWD, etc. Volatility also picked up. Just last Friday, we saw NVDA going from +5% to -5% for the day. COIN went from +12% to +6%. QQQ went from +0.6% to -1.5%.
We have to keep in mind that bull markets often correct through sector rotation. We saw it last week again – when tech pulled back earlier in the week, financials and basic materials were strong and breaking out. When tech bounced back, financials went sideways. Such types of rotations are healthy. They show that capital is not leaving the market but merely looking for better risk/reward opportunities in various sectors.
There are two most likely scenarios for the next week:
- We see a slight correction. The silver lining here is that the best entries in a bull market come after pullbacks.
- We see a continuation of strength with rotation in sectors that haven’t participated as much. Quite a few retailers are still due to report earnings. TGT gapped up. GPS gapped up. We might see more of those and a follow-through in the strongest gaps.
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