Grab a Coffee… We’re Trading All Night

The New York Stock Exchange is considering moving to 24/7 trading, the Financial Times reports.

At the risk of sounding like an old crank, I must admit that I absolutely hate this idea.

Sure, the younger generation might love to trade meme stocks and manage their crypto holdings at 3 A.M. But I need what precious sleep I can get. The last thing I want is my brokerage account pinging me with price alerts at all hours…

A market that never closes would kill the excitement and anticipation of the opening bell – and the great FOMO buying sprees that have accompanied so many power hours between 3 P.M. and the close. A 24/7 market would lose much of the drama and personality that make the day-to-day grind so captivating.

Perhaps I’m overreacting. After all, I’m probably not the only one concerned about trading a market that’s always open for business. In fact, I’d venture to guess that your local technology bull has been pacing the floor most afternoons this month, praying for that closing bell to ring…

Yes, the tech trade is taking its licks following a historic Q1 performance. And while I wouldn’t consider the recent downside action panic-inducing, I doubt anyone who recently bought shares of their favorite semiconductor or Magnificent Seven marvel is too pleased with the April drawdown.

The Wall Street Journal laid out the ugly numbers in black and white early Monday morning…

The Magnificent Seven mega-caps shed a combined $950 billion in market cap last week. Following this year’s incredible melt-up rally to new highs, this routine pullback now claims the honor of being the largest drop in value ever from this esteemed group. And while there’s no reason to get long-term bearish on the prospects of many of these tech darlings, you can probably figure out why more than half of respondents in a BofA Securities survey claim owning these stocks was the “most crowded” trade on Wall Street, again via WSJ.

But the Magnificent Seven names got off easy compared to some less fortunate groups out there. Tech-growth stocks tumbled (many of these plays have been losing ground since early March as rate-cut expectations fell). Consumer Discretionary names dropped nearly 4% on the week, logging their third straight weekly decline Then we have our poor semiconductors…

The VakEck Semiconductor ETF (SMH) tumbled almost 10% last week, breaking below a wide consolidation range to levels we haven’t seen since late February. Again, it’s no secret that we’re dealing with some crowded trades here. But any way you slice it, NVIDIA’s 13% drop and Super Micro’s 20% beatdown created some serious psychological pain for the bulls even though both these stocks are up significantly year-to-date.

To be clear, I’m not attempting to throw salt in the wounds of any investors taking a hit during this semiconductor downturn. But I do think it’s important to learn to identify when trends like these become overextended — and what you should do when they lose momentum and begin to show signs of a potential breakdown.

What’s (Not) Working in This Market…

We’ve been talking about some of these bubbly groups since January — and the party was bound to stop eventually. Now, gravity is taking over.

I was admittedly early (aka wrong) when I first mentioned a few signs of market froth way back in January. We were entering a seasonally weak stretch for the stock market and I was prepping for choppy, sideways conditions to appear in February, which is usually a tough month for the Nasdaq.

Yet as I look back on my concerns from late January, many remain obvious pain points following last week’s tech pullback.

First, small-caps were lagging earlier this year following a strong Q4 performance. The Russell began the year in the red and did not break out above its December highs until late February — failing to keep up with the Nasdaq Composite and S&P 500.

Select growth names were also noticeably absent from the top movers lists. Tesla Inc. (TSLA) is the most high-profile example. It broke from the Magnificent Seven outperformers after reporting disappointing earnings, losing 25% of its value in January alone. Tech-growth bellwether ARK Innovation ETF (ARKK) was also underperforming by a wide margin in January, no doubt affected by its large TSLA stake and other flagging positions.

Fast forward to this week and we have a potential false breakout in small-caps as the Russell 2000 tumbles as much as 9% from its April 1 highs. Meanwhile, TSLA is down a staggering 43% year-to-date and is scheduled to report earnings tonight after the closing bell.

Now, the semis are joining the downside party. I think it’s safe to say that we should expect additional weakness to creep in across the market as one of the year’s biggest winners settles into correction territory.

Choppier for Longer

The melt-up rally that began in early November lasted a lot longer than we initially thought. Now that the momentum has subsided, we should prepare for choppier conditions. That probably means more false breakouts and fewer stocks pushing new highs for the time being…

Back when SMCI was ripping higher every day, I laid out your choices: sit on your hands and sulk because you didn’t grab shares, or get to work searching for the next opportunity.

For the record, I don’t think a semiconductor correction is the end of the world. But I do think stocks need to go down/sideways for a while. A little pain going into the summer is just what the doctor ordered to bleed off some of the excess enthusiasm.

A busy earnings season is already upon us. TSLA and MSFT are coming in hot this week. These reports could set the tone, and align with some other big names that are set to announce numbers soon. That should add to the volatility.

The easy weeks are behind us. Time to prep for a little pain as indecision creeps into to an overheated market…