We saw such unusual market action on Wednesday, Nov. 29, that I had to push my original plan for today's article until next week.
On Wednesday, we had very a unusual occurrence - strongly bifurcated (or split) market indexes here in the United States. Here's what I mean:
- S&P 500 was almost exactly flat: It finished the day down 0.004%.
- The Dow Jones finished the day up an appreciable 0.4% (up 104 Dow points).
- The Russell 2000 Small Cap index was up 0.3%.
- The Nasdaq 100 was down big at a 1.8% dip (and was down 2.3% intraday).
That's a split market. That's a crazy market. That's also a crazy profitable market.
When we had the so-called "Tech Wreck" back in June of this year, CNBC called me while I was sitting comfortably on my couch the night of June 12 and asked if I'd come on air in two hours and talk about my analysis of the last couple of days' events. I was happy to help. I told them that the market was in no danger and should rebound.
Wednesday, with the markets having very similar split-index action, I was telling the editorial staff at The 10-Minute Millionaire that story and halfheartedly suggested they might do it again...
And the on-air request from CNBC hit my email at precisely 7:29 p.m. that night!
Here are the thoughts I put together for them... plus what I didn't tell them about how to profit.
Here's What I Told the Network About Wednesday's Split Market
When I'm preparing to go live on TV, I have to focus my thoughts to convey the essence of some usually complex ideas in a very short time frame. While they're a bit more than "sound bites," the networks like tight, fast answers.
So here's the bottom line of Wednesday's strange behavior from my notes for CNBC - then I'll share what we'll do with that information.
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The Nasdaq/tech sell-off was not confirmed by the other major indexes. In fact, the Dow and Russell 2000 were up quite strongly. This means that the money rotating out of tech didn't go the sidelines, but back into other sectors.
This "sector rotation" thesis is confirmed by the price action in other sectors. While tech got creamed, more defensive sectors thrived. A "defensive sector" is one where stock prices go down less or even turn up when markets are under duress. Think of them as less volatile "safe havens" where money managers invest in down markets. Utilities, healthcare, and financials are typical defensive sectors - and all of them were up Wednesday.
This combination of observations means there's a simple explanation for Wednesday's split market. With tech down big and defensive sectors up (and some strongly so), there's a straight-forward explanation. This was good, old-fashioned profit taking. The tech sector has been the year's best performer - by a wide margin. This outperformance was seen by a broad swath of tech stocks. It was seen by the tech giant FANGMA stocks - Facebook, Amazon, Netflix, Google (Alphabet), Apple, and Microsoft. It was seen by semiconductor stocks - especially memory companies like Micron and Taiwan Semiconductor. It was seen by online Software-as-a-Service (SaaS) stocks like Salesforce.
And Here's What I Didn't Tell Them
All of them got slammed Wednesday for the simple reason that some investors and traders started taking profits early in the trading day, and then others piled on.
So what?
What does all of that mean for us? When the market leaders get hit hard and the broader market doesn't go down, we have to take notice.
That's the action of a healthy strong market. Investors and traders didn't take money out of the market - they just reallocated it (most likely temporarily) to other sectors.
That's why I predicted a rebound (which we got in Thursday's trading action) and why I believe this small tech pullback will give us multiple buying opportunities. I like buying the FANGMA stocks right now.
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The post Here Are the Notes I Didn't Share with CNBC About Wednesday's "Tech Wreck" appeared first on 10-Minute Millionaire.
About the Author
D.R. Barton, Jr., Technical Trading Specialist for Money Map Press, is a world-renowned authority on technical trading with 25 years of experience. He spent the first part of his career as a chemical engineer with DuPont. During this time, he researched and developed the trading secrets that led to his first successful research service. Thanks to the wealth he was able to create for himself and his followers, D.R. retired early to pursue his passion for investing and showing fellow investors how to build toward financial freedom.