Tech stocks are tumbling. The AI rally just slammed the brakes. Investors are getting fearful. This week's headlines painted a picture of panic, but beneath the surface, something else may be unfolding.
When the stock market is overstretched, it’s not unusual for it to pull back. We’ve seen this play out several times this year. Each time the market pulled back, buyers would jump back in and send the market higher. This week felt a little different, though. Buyers weren’t rushing back in right away, and for a moment, it looked like the major indexes might end the week below some key support levels.
Then, midday on Friday, the broader indexes started to perk up and, by the closing bell, a couple of them closed higher.
Here’s how the indexes finished on Friday.
Dow Jones Industrial Average ($INDU): 46,987.10 (+0.16%)
S&P 500 ($SPX): 6,728.80 (+0.13%)
Nasdaq Composite ($COMPQ): 23,004.54 (-0.21%)
If you were to pull up a daily chart of these indexes, you’ll see they’re all holding on to key support levels — the 50-day simple moving average (SMA) for the S&P 500 (see chart below) and Nasdaq Composite, and the 21-day EMA for the Dow. Even the Cboe Volatility Index ($VIX), which briefly jumped above 20, settled back below that level by the end of the week.
Despite all the chatter about fear and volatility, the big picture looks healthy. What we’re seeing now may be a much-needed correction that gives the market a chance to catch its breath before the next leg higher.
The Mag 7 stocks have been heavy contributors to the market's upward move. If you take a look at the chart of the Roundhill Big Tech ETF (MAGS), you’ll see it bounced off its 50-day SMA. The StockCharts Technical Rank (SCTR) score in the lower panel is close to 94, signaling continued technical strength.
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What’s the SCTR score for stocks and ETFs in your portfolio? Click on the above chart and experiment a bit. Enter different ticker symbols and identify trend direction and the SCTR score, two items (among several others) that should be on your checklist.
Bottom line: Markets can’t go straight up forever. Periodic pullbacks help bring valuations closer to reality and often set the stage for the next rally. This could be one of those times.
You’ll find more perspectives like this in our latest collection of articles and videos, including a special new release from Larry Williams, who shares where he sees potential risks and opportunities building across the market.
🗓️Mark Your Calendars!
Saturday, November 15, 10:00 AM ET — Our friends at EarningsBeats.com are hosting a Fantasy Stock Draft featuring Tom Bowley, Grayson Roze, and Julius de Kempenaer. Watch them go head-to-head with their stock picks. Who scores big and who gets benched? You’ll have to tune in to find out.
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