There's an Obvious Explanation for the Stock Reversal on Tuesday
A strong bounce ended in the middle of the day but that isn't uncommon given the setup.
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A strong two-day bounce for the stocks that were hit the hardest last week ended on Tuesday with an intraday reversal. This is a typical pattern, with early strength inviting some profit-taking and a weak finish. It wasn’t a large reversal, but it was enough to kill the bounce action for now.
Economic Crosscurrents
There was no particular news catalyst for the intraday reversal. Retail sales numbers came in lower than expected, but this cuts both ways because it may be an indication of easing inflationary pressures.
The more important data will be released on Wednesday morning, when the delayed January jobs report is released. The unemployment rate, expected to be 4.4%, will be watched closely, and if it ticks higher, there will be loud calls for immediate rate cuts. With a new Federal Reserve chair coming soon, the odds of a rate cut will increase, which is likely to be a market positive.
Repositioning and Sector Shifts
The main thing that is happening now is that investors are positioning themselves after a bout of volatility and a reassessment of the AI sector. There are still concerns about valuation, but the reaction to earnings news has dealt with that to some extent.
We still have plenty of secondary earnings reports hitting, and that creates some pockets of action, but speculative action cooled off on Tuesday. Breadth was robust, with 51% of stocks advancing, while big-cap technology names were mostly in the red. The Magnificent Seven just isn’t what it used to be, and there are few signs that it will regain its leadership role anytime soon.
The Game Plan
My best advice is to stay focused on individual positions and let them be your guide to your level of market exposure. The indices are messy and distracting and of little help in determining a tradable trend.
I’m keeping a close eye on names like TeraWulf (WULF) , where I've been adding lately, as well as Xeris (XERS) and Harrow (HROW) . These individual setups are providing much better clarity than the broader market averages right now.
Have a good evening. I’ll see you tomorrow.
At the time of publication, DePorre was long WULF, XERS and HROW.
