Meta Emerges as Magnificent 7 Leader With Potential for Bounce
The Magnificent Seven are the market's villains as the group tests the 200-day simple moving average.
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A better-than-expected CPI report and some bottom-fishing in the AI group helped to produce a short-lived bounce on Friday, but the positive action faded late in the day. Due to some relative strength in small caps, breadth was better with around 63% of stocks advancing, but it was the Magnificent Seven that were the villains once again.
The Roundhill Magnificent Seven ETF (MAGS) finished down over 1% and stopped just shy of breaking the 200-day simple moving average. To put it plainly, the chart stinks and there is no good immediate support in sight. There was some talk on Friday morning that the AI-related destruction may be overdone, but it wasn’t loud enough or persistent enough to draw in serious buyers. There are some names that are starting to look like decent values, but the downside momentum is too strong at this point and these stocks can easily go lower.
Rotational Pockets and the Nasdaq 100
The good news is that there still is rotational action and the ugly action narrowed to a few mega-caps. The Nasdaq 100 (QQQ) actually had only about 30 decliners to 70 advancers, however, few of the advancers finished at the highs of the day.
The weak close may be due in part to the added complexity that Mainland China markets are closed next week for China’s Lunar New Year and Hong Kong will be closed through Thursday, February 19. My question is: Why doesn’t the U.S. have a week-long holiday?
Historically, the U.S. has stayed away from week-long national shutdowns because our federal holidays are established individually by congress and lack the deep agricultural or mythological roots of a "Spring Festival." While China uses these breaks to boost domestic tourism and consumer spending, the U.S. market is built on a culture of constant liquidity. We even struggle to add an 11th federal holiday because of the anxiety over closing banks and markets for just 24 hours.
Finding Value in the Magnificent Seven
The mega-cap technology names were the leaders of this market for a very long time and the transition to laggards from leaders has been very tough on investors. It is not a group that can just be ignored even when it's obvious that other sectors are doing quite well.
It is likely that we will see a very energetic bounce in the Magnificent Seven soon. It may not last, but it is a group that is very easy for big-money investors to buy and when they want to put on risk, they will be very aggressive. I believe the best value in the Magnificent Seven is Meta (META) and will continue to watch it very closely for bounce trades.
Don’t forget we are closed on Monday for the President’s Day holiday. I’ll see you on Tuesday.
At the time of publication, DePorre was long META.
