Did Wednesday’s Brutal Selloff Clear the Air—or Is Downside Momentum Building?
Dip buyers are lacking confidence, but many stocks have been unfairly punished.
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
The Nasdaq fell nearly 2% on Wednesday as investors continued to question profitability and valuation in the AI sector. Oracle (ORCL) triggered additional concern on reports that it was having difficulty funding a $10 billion data center. The data-center group was hit hard, and semiconductors came under extreme pressure on questions about demand.
The poor action in AI-related stocks is impacting the market mood and spilling over into other sectors. Still, there have been some areas holding up, and breadth was relatively strong with around 38% of stocks advancing despite the big losses in technology.
When the smoke cleared on Wednesday, both the Nasdaq 100 (QQQ) and S&P 500 (SPY) were under their 20-day simple moving averages, while the Russell 2000 (IWM) and DJIA were still holding above key resistance levels.
There is some relief bounce in chip stocks early on Thursday following a very strong report from Micron (MU) . Micron provides the chips that drive computers, phones, and consumer products, and is not as leveraged to data-center spending as other chip players. The strong results are calming some fears about AI demand and valuation.
The question at this point is whether the ugly action on Wednesday was sufficient to wash out some of the pessimism and set the stage for a healthy end-of-the-year run, or was it a significant technical breach that gained downside momentum.
The key here is the willingness of dip buyers to jump in and embrace a bounce. There hasn’t been good dip-buying support recently, and a few feeble bounces have fizzled out quickly. There may have been too much hope that a Santa Claus rally was starting early and that trapped overly anxious bulls trying to stay ahead of the crowd.
There is delayed CPI news coming up Thursday morning, which could be helpful if it shows that prices are stable. At this point, the market is not expecting the Fed to take any action in January, but if there are more signs of economic weakness and cooling in price pressures, that could change.
Quite a few stocks were unfairly punished in the carnage on Wednesday, but do the dip buyers have the confidence to step up and put cash to work? While there is the prospect of positive seasonality to help, buyers have been beaten up and need to regain some confidence.
At the time of publication, Rev Shark had no positions in any securities mentioned.
