A true stinker the market is

The Nasdaq Composite dropped deeper into correction territory on Thursday, sparked by Meta, which became the latest tech company to offer a forecast that didn’t meet investors’ expectations.

The tech-heavy index lost 1.76%, closing below its 200-day moving average and ending at 12,595.61. The NASDAQ 100 fared even worse, losing 1.89 % and closing at 14.110. The S&P 500 dipped 1.18% to finish the session at 4,137.23, while the DJIA slipped 251.63 points, or 0.76%, to 32,784.30. The R2K was up 0.35 % though.

During Thursday’s session, the S&P 500 dipped into correction territory at its low. Following a 2.4% decline on Wednesday, the Nasdaq Composite is now officially in correction territory, down more than 10% from its high close for the year in July.

The NASDAQ 100 touched the trendline of the correction channel and stopped its decline.

While overshooting on the 38.2 % Fibonacci retracement ratio, the market touched the lower channel and stopped its decline. This may indicate that the consolidation - 4th wave taking a complex a-b-c-d-e form - is over, and wave 5 will follow suit. This may also be a temporary stop on an escalator-like way south. A true stinker the market is right now.

We are entering a seasonally bullish period, and sentiment has turned highly bearish again. We see two crucial support levels:

Support 1: 13.750

Support 2: 12.880 (this level must hold for the bull count to be valid)

We remain in the (near-term) bullish camp but see increasing cracks in the overall picture.

Yields may be topping

I still think that yields may be topping anytime soon now. The chart below shows the price action (last six months) of the TLT ETF. A bottom may be forming, but the downward trend remains intact.

TLT and different time frames

An inverse head and should formation may be shaping up. There is no confirmation yet, however.

The second stage of hypergrowth and AI stock buying has started

Hypergrowth stocks that showed good cost-cutting results but no resumption of accelerated growth for 2024 were punished badly after their earnings were out.

Cost-cutting is a HY1 2023 theme. The market will only accept elevated multiples for those hypergrowth stocks that can demonstrate a credible path toward returning (close) to the rule of 40 in 2024. One example is yesterday's Amazon price action.

There was an initial price pop AHs when numbers were out. The stock then reversed (went almost negative) when it became clear that AWS did not show any growth acceleration compared with estimates. The Meta fate was around the corner. Prices popped again when, during the following call, AWS's 4th quarter growth projections were lifted from 12 % to 16 % on strong AI demand.

I believe that investments in AI will continue to rise in 2024 but much more selectively. This means that AI shovel stocks will show a two-sided performance. There will be a few winners but many more losers.

Semis: We like Nvidia, but not necessarily AMD Marvel.

Cloud: Service Now and Adobe are the two companies that already have a profitable AI model. Service Now is now a rule of 55 company!