From the desk of Willie Delwiche.
Key takeaway: A peak within the NASDAQ (or the Technology sector) shows that pockets of speculative excesses are being unwound. There has been enough strength in the market elsewhere, as well as a still favorable earnings and economic data backdrop, to keep investors generally optimistic. In March, market volatility allowed optimism to retreat from excessive levels but not completely unwind. We may be seeing early indications that the current bout of volatility will have a more substantial impact on investor psychology. If so, the price reaction will likely not be as benign as was seen two months ago.
Sentiment Report Chart of the Week: Unwinding Speculative Fervor
The Nasdaq has been the leader off the March 2020 lows during the speculative beta chase that ensued. However, excessive optimism has come off a full boil and it shows in pockets of breadth deterioration seen in the former leader. While more than 40% of the stocks in the NASDAQ Composite have seen drawdowns of 30% or more, less than half that number (18%) are even at new 63-day lows.