Market Leaders are Failing
Every bull market has a “theme” – a specific sector or group of stocks that lead the rest of the market. In the last '90s it was dot-com. From 2009-2020 the theme was big tech. The short-lived bull from 2020-2021 was driven by work-from-home stocks.
This market has had a theme too. And that theme is artificial intelligence.
Stocks with exposure to AI have been the top performers in 2023. Meta, Nvidia, Super Micro Computer, MongoDB, and several others have all seen spectacular gains this year.
These are the market leaders… the institutional favorites… the Wall Street darlings… whatever you want to call them.
When these stocks begin to pull back, the rest of the market does too. So, we always want to keep an eye on them.
Last week, leadership began to weaken. NVDA, MDB, AAPL, AVGO and others closed below their 21-day EMA for the first time in months.
When leading stocks dip, we want to see them bounce immediately. We want to see them act like tennis balls, not eggs.
They didn’t.
And as expected, the selling continued throughout the week. The Nasdaq index closed firmly below its 50-day moving average for the first time since January.
Make no mistake - I still believe we are in a bull market. If I were a long-term investor, I would hold through what will likely be a short-term pullback.
But as a trader, my goal is to make as much as I can when the environment is favorable, and the the heck out of the way when things turn south.
This is 'get the heck out of the way' time.
Although the indexes have only pulled back 5-6% so far, many of the big names have fallen 20% or more over the last several weeks. The indexes are generally a poor gauge of growth stock performance. However, the action in growth stocks is often a precursor to what we will see next in the general market.
Hopefully, this retracements is temporary. We have not yet seen broad-based selling on above average volume, and that is a good sign.
Pullbacks are normal. Stocks do not go straight up. When prices rise too much too fast, they need to “reset” in order to digest the price action and knock the froth off the market.
Smart traders will use these periods as a proving ground for the top stocks. Which names hold up the best? Which tickers pull back the least and do so on the lightest volume?
These will be the winners on the next leg higher.
I try my best to scan enough stocks to try and get a feel for where money is flowing. Often you will see a group or two surging while the rest of the market is pulling back. Right now, only two areas stand out:
The first is oil and gas stocks. These have performed very well over the last few weeks. It is too soon to say if this will develop into an overarching theme, but I am keeping an eye on this group and bought a couple stocks to test the waters.
The big cryptocurrencies are also showing a lot of strength here. Bitcoin and Ethereum, which I trade via the GBTC and ETHE exchange traded funds, looked poised for breakouts higher. They are showing a lot of strength right now when not much else is.
This market has had a theme too. And that theme is artificial intelligence.
Stocks with exposure to AI have been the top performers in 2023. Meta, Nvidia, Super Micro Computer, MongoDB, and several others have all seen spectacular gains this year.
These are the market leaders… the institutional favorites… the Wall Street darlings… whatever you want to call them.
When these stocks begin to pull back, the rest of the market does too. So, we always want to keep an eye on them.
Last week, leadership began to weaken. NVDA, MDB, AAPL, AVGO and others closed below their 21-day EMA for the first time in months.
When leading stocks dip, we want to see them bounce immediately. We want to see them act like tennis balls, not eggs.
They didn’t.
And as expected, the selling continued throughout the week. The Nasdaq index closed firmly below its 50-day moving average for the first time since January.
Make no mistake - I still believe we are in a bull market. If I were a long-term investor, I would hold through what will likely be a short-term pullback.
But as a trader, my goal is to make as much as I can when the environment is favorable, and the the heck out of the way when things turn south.
This is 'get the heck out of the way' time.
Although the indexes have only pulled back 5-6% so far, many of the big names have fallen 20% or more over the last several weeks. The indexes are generally a poor gauge of growth stock performance. However, the action in growth stocks is often a precursor to what we will see next in the general market.
Hopefully, this retracements is temporary. We have not yet seen broad-based selling on above average volume, and that is a good sign.
Pullbacks are normal. Stocks do not go straight up. When prices rise too much too fast, they need to “reset” in order to digest the price action and knock the froth off the market.
Smart traders will use these periods as a proving ground for the top stocks. Which names hold up the best? Which tickers pull back the least and do so on the lightest volume?
These will be the winners on the next leg higher.
I try my best to scan enough stocks to try and get a feel for where money is flowing. Often you will see a group or two surging while the rest of the market is pulling back. Right now, only two areas stand out:
The first is oil and gas stocks. These have performed very well over the last few weeks. It is too soon to say if this will develop into an overarching theme, but I am keeping an eye on this group and bought a couple stocks to test the waters.
The big cryptocurrencies are also showing a lot of strength here. Bitcoin and Ethereum, which I trade via the GBTC and ETHE exchange traded funds, looked poised for breakouts higher. They are showing a lot of strength right now when not much else is.
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