Corrective Action Hits Market and More Could Be Ahead
The market struggled with some profit taking in big names.
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The market struggled on Wednesday with negative breadth and profit taking in some of the AI leaders. Recent headlines have highlighted significant capital spending by hyperscalers, which has led to some froth action. This has prompted prudent investors to pull back slightly, but there is no panic so far.
The indices closed near the lows of the day, which is never a good sign, but the losses were not severe on Wednesday. The Nasdaq 100 QQQ is pulling back 0.36% but the IBD 50 ETF FFTY, which is leading growth names, fell nearly 2% after taking a 1.5% hit on Tuesday. This ETF holds some of the biggest winners in the market, which tend to have higher levels of volatility and are often the first to see selling when there is a market downturn.
The Russel 2000 lost 0.9% but, once again, there was a long list of names moving up more than 10%. The number of new 12-month highs contracted to around 165, but there is still some good action in individual stocks.
The best action in the market is hidden in secondary stocks, which is one of the reasons I believe that this is not a major top but just some healthy, overdue, corrective action. Support levels have not even been tested in most cases.
It is very possible that this correction goes deeper, but it is tough to find new opportunities in a market that is going straight up. Pullbacks and dips create some better entry points, but if support levels start to fall, then it will be very important to pull stronger defense. So far, this is exactly the sort of corrective action that we need.
Have a good evening. I’ll see you tomorrow.
At the time of publication, DePorre had no positions in any securities mentioned.
