Correction Intensifies as Amazon Adds Fuel To the Fire
The market saw another ugly day of corrective action.
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It was another ugly day of corrective action, but this time breadth was much worse, with only 24% of stocks in positive territory. The Magnificent Seven was slugged for a 1.9% loss, although Alphabet (GOOGL) rebounded and closed with a minor loss of just 0.5%.
Amazon Drags on Sentiment
After the close, Amazon (AMZN) disappointed largely due to special charges of about $2.3 billion for tax matters, severance and legal costs. The guidance was a very large range, and the CapEx is an issue, just like it was for Google. Amazon is facing some tougher competition lately from Walmart (WMT) , which may also be an issue. Amazon is down an additional 8% or so after the close and dragging down the Magnificent Seven even further.
Finding a Floor in No Man's Land
The big question for investors is whether this rerating of AI names, high PE names and growth stocks is close to a crescendo. These corrections always go deeper than you think, but eventually the gloom will lift, and market participants will start hunting for the best buys.
There typically is a painful period where momentum stocks lose their momentum, but haven't fallen enough to become value plays. There is a no-man's land between momentum and value that can be quite large, and that is where we are right now.
Looking Ahead to Earnings
I remain optimistic about the many good opportunities that are being created by this very ugly action. However, it is important to keep in mind the three most important things in trading a market bottom: timing, timing and timing.
I'm working on prioritizing my watch list and will be making some plans for attack as we move into small-cap earnings season next week.
Have a good evening. I'll see you tomorrow.
At the time of publication, DePorre was long GOOGL and AMZN.
