Microsoft (MSFT) and Tesla (TSLA) posted stolid reports on Wednesday night, but it triggered an aggressive "sell the news" reaction in big cap stocks. But what was most interesting about the action was that it was very mixed. There was some rotational action into banks and small caps while the leading big cap growth names suffered most of the damage.
The Russell 2000 fund (IWM) actually finished with minor gainers vs. the Nasdaq 100 (QQQ) , which was down 2.6%. Breadth slipped most of the day and ended at 2,600 gainers to 4,700 decliners. That isn't bad considering the intensity of the selling in the "FATMANN" big-cap tech names.
The action is actually quite logical. The big cap momentum names have been leading the market higher for some time and have become extended and expensive. Typically, when leading names like this correct, the entire market will fall in tandem, but market players are still finding names that are not widely overpriced and they are willing to buy them. Many of these are smaller stocks and under the radar names. Usually, these stocks suffer from a lack of bids when the big stocks but that was not the case today.
Since June 1, there have been about 10 days on which there was a fairly deep selloff. In every case, the Nasdaq was higher the next day. It has been one-and-done action, so it will be interesting to see if the bears can generate a little downside momentum.
As I've discussed, my biggest worry about the market is when the selling is highly correlated. That was not the case today, but we'll see what the sellers can do tomorrow. So far this is just a healthy shake-up and a rotation out of expensive and extended stocks into things that look more attractive.
Intel (INTC) earnings after the close are seeing a negative reaction, which is adding a little more selling pressure to the Nasdaq 100.
Have a good evening. I'll see you tomorrow.