The Tape Is Getting A Little Stretched

seekingalpha02-13

While the NASDAQ 100 Index is being pushed up by the AI momentum trade, the small-cap Russell 2000 finally woke up last week but is still down for the year.The broad market is lagging the S&P 500 ...

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While we no longer use a paper tape with prices and symbols, and everything is electronic, the term “tape” has stuck with us. As Mark Twain famously quipped, “All generalizations are false, including this one.” While the NASDAQ 100 Index is being pushed up by the AI momentum trade, the small-cap Russell 2000 finally woke up last week, but is still down for the year. The broad market is lagging the S&P 500 index because of the high concentration of trillion-dollar stocks (the Magnificent Seven) that are pushing the S&P 500 index higher.  Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary. Still, the fact that February has a terrible reputation and, more importantly, the second half of February tends to be one of the worst two-week periods of the year, is in the back of my mind. It doesn’t help that on Friday, when the S&P 500 index closed convincingly for the first time above the 5,000 mark, the VIX Index was up on an up day. This is not normal and, near turning points, suggests that caution is warranted. The only reason why the VIX would be up is because the cost of protection is going up, because buying protection is getting more popular. Earlier in the S&P rally that started at the end of October of 2023, the corrections were very shallow, typically 1-2 days. We did see something more meaningful in the first week of January, which was overdue, as it is not normal to shoot straight up without any meaningful zags.  Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary. I think the coming correction will be as big as the first week of January, if not bigger, simply because some of the AI momentum trades have gone parabolic and, when they correct, those selloffs tend to be sharp. When this correction is over, we will likely make higher highs, as the lack of a recession suggests a broader stock market, like we had in November and December, which has been missing so far in 2024. To summarize, between now and the end of February, I am looking for a 3% to 5% selloff in the S&P 500 index, although I realize that it can come from a higher level for the index. Momentum trades like the NASDAQ 100 can always go higher (much higher in some cases), before they correct. If you are bullish, you’d want the market to correct, you don’t want it to go parabolic, as that typically does not end well. All content above represents the opinion of Ivan Martchev of Navellier & Associates, Inc. Disclaimer: Please click here for important disclosures located in the \"About\" section of the Navellier & Associates profile that accompany this article. Disclosure: *Navellier may hold securities in one or more investment strategies offered to its clients. Original Post  Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.25.1","shortVersion":"4.25.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2411872386"}