MarketSurge powers the charts in this video.
Anything AI-related is currently under distribution, which notably accelerated last week. Software and semis lost their 50-day moving average last week. Biotech is on its third week of declining below its 20- and 50-day moving averages. Small caps are on a 9-week losing streak and below their 200-day moving average. Tech mega caps are in a better shape, but even META and AAPL are starting to crack. The market is in a correction mode.
Last week, we saw a rotation into defensive assets – US Treasuries, consumer staples, healthcare. This is typical stage one of a correction. Stage two is widespread panic selling – everything goes down together. Stage 3 is characterised by bullish divergences – the indexes make new lows, but select stocks are making higher lows and starting to show clear relative strength. These stocks are the likely new leaders. A correction might last a couple of weeks or a couple of months. In 80% of the cases, it leads to another strong rally. In 20% of the cases, it leads to a multi-month bear market.
In the meantime, crude oil keeps pushing higher, and energy stocks are the current market leaders. Both CPI and PPI September inflation reports came well above estimates. So unless the Fed plays complacent or unemployment suddenly spikes, we are likely to see more rate hikes this year.
The new earnings season has just begun. Most companies tend to beat earnings estimates. What matters is the market reaction. When the market sentiment is sour, most stocks sell off even after strong earnings. When the market is in a good mood, most stocks go up eventually, even after questionable earnings reports.
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