MarketSurge powers the charts in this video.
The correction continues with full force. It might sound funny to some that we are talking about a correction while the S&P 500 is down just 2% year-to-date, but the damage in many market leaders from last year has been substantial. One by one, all momentum bastions have been taken out. Last week, we talked about the relative strength in financials. It didn’t take long for that to change. Financials also dived lower. Looking at earnings reactions, almost all major upside earnings gaps were completely closed. This is a bear market price action. QQQ and SPY are right at their rising 50-week moving average. Historically bear markets live under the 50-week moving average. The indexes are at a pivotal point.
With all that weakness, some might be wondering if there is any strength left in the market right now. There is, but typically, it is not a good idea to chase it. Telecoms like TMUS and VZ, fast food stocks like MCD, healthcare stocks like JAZZ, GILD are still near their 52-week highs and up on the year. Such rotation into typically defensive sectors happens when the market expects an economic slowdown. Outside the US, we see notable strength in European and Chinese equities. Gold is near all-time highs. Gold miners ETF, GDX is setting up for a potential breakout to new multi-year highs.
The markets don’t like uncertainty. The new administration has brought uncertainty with frequent direction changes regarding tariffs, trade policies, and political relationships. More uncertainty means more volatility. By now, the market has accepted that volatility will be elevated for the foreseeable future. All eyes are now pointing towards the Fed. The Payroll numbers were below estimates. Unemployment is ticking up, while hourly wages are growing below estimates. The Fed is typically too patient and slow to act, but soon they might have enough arguments for more rate cuts.
We remain in a corrective market where it is essential to keep drawdowns small and if possible, even increase our capital with select tactical hits. What works in this tape is not what worked for the better part of 2024. The current tape requires different tactics and willingness to change our market view often. All types of markets – bull, bear, range-bound provide good trading opportunities, but they require a different approach.
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