Magnificent Seven Puts Band-Aid Over Poor Market Action
Indexes are green but names like Salesforce are sinking fast. I see a way, however, that things could change for traders.
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For the second day in a row, the Magnificent Seven MAGS is covering up poor action in the broad market. This time it's Amazon AMZN and Meta META that are performing, while Alphabet GOOGL and Apple AAPL take a rest.
While the indexes are green, breadth is running slightly negative, and there are more 12-month lows than highs. The software sector is particularly weak, with Dow Jones member Salesforce CRM down 8%.
Trading is becoming more difficult this week as pockets of speculative action have been contracting, and small caps are no longer outperforming. There is quite a bit of profit-taking in many of the secondary stocks that had good runs in August.
There are a couple of issues that are causing some caution. The first is that everyone is aware of the negative seasonality that typically occurs in September, but they aren't going to act on it until there is some price action to confirm it. The bulls have their finger on the eject button, but they aren't going to hit it until there is some weak action.
The second issue is that a Fed rate cut in two weeks is now a near certainty, and that is being discounted by the market. A cut will not be a surprise and creates the potential for a "sell the news" reaction. Some traders are trying to jump ahead of that possibility, and that is preventing new buying.
I see poor action in Bitcoin IBIT, Uber UBER, and AST SpaceMobile ASTS. I like all three on a fundamental basis, but they are breaking down technically and need to find support. These three, along with Nvidia NVDA, are names I anticipate adding at some point, especially if negative seasonality takes them down further.
The biotechnology sector continues to be of interest, and two names I'm adding to my watch list are Avidity Biosciences RNA and Taysha Gene Therapies TSHA. Both have attractive charts, and RNA is getting some talk about a possible takeover.
This is poor market action, but the Magnificent Seven is covering it up. The good news is that we need poor action to create some better opportunities.
At the time of publication, DePorre was long UBER, ASTS, IBIT, RNA, TSHA.
