On Friday, the NASDAQ tumbled 4.2%, its largest one-day drop since April last year. The small cap Russell 2000 fell 3.5%, while the Dow and the S&P 500 lost 1.4% and 2.6%, respectively. All the majors posted losses for last week, while the VIX, which is a measure of S&P 500 volatility, jumped 40%.
Source: TN Trader
Despite the tech selloff and the tit-for-tat missile attacks between Israel and Iran, there has been some opportunistic buying this morning focused on semiconductors and other tech-related stocks.
Traders appear to be relatively confident of a rebound after Friday’s slump, once again betting that ‘buying-the-dip' will be a profitable ‘strategy.’ And why not? It may well have worked on every pullback since October 2022, but it’s still worth exercising some caution. For a start, it is far from clear that the selloff is over.
Another is that every strategy has an end date, even one as basic as dip-buying. And on top of this, traders need to be fairly clear why equities sold off in the first place so they can assess if that danger is now over. If they’re going to blame the pullback on disappointment over Broadcom’s forward guidance or a strong set of payroll numbers, then they may be missing a trick.
Technically, US equities have looked very overbought for a while now, and last week the NASDAQ hit its head on a significant Fibonacci level. Broadcom’s disappointing forward guidance may be a one-off, and we’re now at the far end of the first quarter earnings season.
But there can be little doubt that the US labour market, along with its economy, is robust enough for rate hikes, which, when considering the latest inflation data, are needed to help dampen price rises.
This morning’s jump in the crude oil price, following further hostilities over the weekend, only exacerbates inflation concerns. Meanwhile, there are also worries that the huge upcoming AI-related IPOs, which begin this Friday with SpaceX, are sucking oxygen out of a market which already has a very thin atmosphere.
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