Chaotic Week Sets Up Conditions for Aggressive Thanksgiving Trading
Here's the good news about the action and the areas where investors are now rotating.
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It was a dramatic week for the market, but it provides an interesting setup as we move into Thanksgiving Week, which typically has some upbeat action.
The highlight of the action was the historic market reversal following very strong earnings and guidance from Nvidia (NVDA) . Analysts loved the report, and the bulls could hardly contain their excitement, but the stock reversed hard and took the entire market with it.
The weak action continued for a while on Friday morning and felt a bit "crashy," but it was intense enough to clear the air, and some bounce action kicked in. It was an uneven bounce, with small-caps (IWM) leading with a nearly 3% gain and biotechnology (IBB) breaking to a new closing high. The Magnificent Seven and the Nasdaq 100 (QQQ) lagged with a 1% gain, while the mighty Nvidia couldn’t manage to stay in positive territory.
The high level of volatility didn’t do much to resolve the valuation issue in the AI sector. There was continued pressure on the data-center group on Friday, and semiconductors struggled to hold on to a bounce.
The good news about the action was the rotation into other sectors. Biotechnology names looked very good and were the leaders on my screen. Investors aren’t abandoning the entire market. They are rotating into other areas where there isn’t as much debate over valuation. Retail (RTH) is another group that had a good bounce Friday.
One issue that helped the market Friday was that hopes of a Fed rate cut at its next meeting on December 10 increased, with the odds of a quarter-point cut jumping to 71% from 39% on Thursday. A couple of Fed speakers sounded dovish, and concerns about slowing employment have been building. A rate cut won’t fix AI valuation issues, but it will help to support small-caps and many other areas of the market.
Thanksgiving week action tends to attract speculative trading in the thin sessions around the holiday. The good cheer of the holiday is usually conducive to some fast, short-term action.
Have a great weekend and get that holiday shopping done early this year.
At the time of publication, Rev Shark was long NVDA.
