Rotational action continued on Wednesday, with the Russell 2000 leading and Nasdaq 100/Invesco (QQQ) lagging, but it was messy action, and breadth was not nearly as strong as it was on Tuesday. We saw about 4,550 advancers to 3,500 decliners, but much of the strength was in smaller regional banks — and the regional bank exchange-traded fund (KRE) — and energy. The big-cap artificial intelligence favorites were hit hard, as were many of the growth names that have been helping out the Nasdaq.
The good news is that the market continued to broaden, but the names that have been leading the narrow advance were hit fairly hard and are looking toppy. Microsoft (MSFT) , for example, gave back more than 3% and is looking for some support. That isn’t all bad, as market conditions were not particularly healthy. The gap between this small group of AI names is starting to close now, and there are quite a few stocks that are developing pretty good technical setups, and they are not at all extended like the Fab Five AI Favorites.
The big issue is whether this rotational action can continue. If there is a return to macroeconomic and big-picture issues, then this sort of rotational stock picking is going to have a hard time, but it is refreshing to see more focus on some of the basic things like good charts and solid fundamentals. The market has ignored those things for far too long.
The market is at an interesting juncture as this rotation out of big-cap technology and until the broad market starts to gain some traction. If this continues, it will be very favorable for stock pickers and technical traders, but the big danger is macro news that causes a correlated movement. I’ll be working hard to find good stock picks, but my trust level is still fairly low.
Have a good evening. I’ll see you tomorrow.