Tuesday, Wall Street investors sent the market soaring as they looked past geopolitical concerns and jockeyed for positioning in tech stocks ahead of earnings season. The Nasdaq, which has been the most beaten-down index, stormed back nearly 2%.
Time to Buy the Dip in Momentum Stocks?
High beta, tech momentum just suffered a 33% drawdown in a handful of sessions, marking one of the worst drawdowns since the late 1990s Dot Com bubble burst. However, previous drawdowns of this magnitude have resulted in significant market bottoms. For instance, in 2022, high-beta momentum stocks suffered a 32.82% drawdown before bouncing.
Image Source: GS
Stocks Climb the Wall of Worry
According to the CNN Fear & Greed Index, Wall Street investors are currently fearful. The fear comes as the major market indices have chopped sideways over the past few weeks. Despite the flattish price action, the destruction of momentum stocks and the restarting of the U.S.-Iran conflict have caused elevated fear levels
Image Source: CNN
However, just as many investors threw in the towel on AI stocks, recently beaten-down AI stocks such as SanDisk (SNDK), Cerebras Systems (CBRS), Cipher Mining (CIFR) stormed back.
From False Moves Come Fast Moves
On Wall Street, one day does not prove a trend. Nevertheless, it can produce valuable clues for investors. For instance, Micron (MU), a leading AI stock, broke down from a bearish head-and-shoulders pattern on the daily chart. However, on Tuesday, shares roared back more than 10% and retook the “neckline” of the pattern. More often than not, false moves produce violent moves in the opposite direction as late bears and shorts get trapped.
Image Source: TradingView
Meanwhile, MU shares retook the 10-week moving average after a brief shake below it. The regain of the 10-week moving average means that shares remain in an uptrend. Furthermore, MU is forming a classic bull flag pattern. Similar patterns have produced triple-digit returns over the past few years.
Image Source: TradingView
Bottom Line
Tuesday, stocks climbed the proverbial Wall of Worry as investors looked beyond geopolitical concerns. The false moves in many AI stocks suggest that the rally has staying power.
Zacks' Research Chief Names "Stock Most Likely to Double"
Our team of experts has just released the 5 stocks with the greatest probability of gaining +100% or more in the coming months. Of those 5, Director of Research Sheraz Mian highlights the one stock set to climb highest.
This top pick is a little-known satellite-based communications firm. Space is projected to become a trillion dollar industry, and this company's customer base is growing fast. Analysts have forecasted a major revenue breakout in 2025. Of course, all our elite picks aren't winners but this one could far surpass earlier Zacks' Stocks Set to Double like Hims & Hers Health, which shot up +209%.
Free: See Our Top Stock And 4 Runners UpMicron Technology, Inc. (MU) : Free Stock Analysis Report
Sandisk Corporation (SNDK) : Free Stock Analysis Report
Cipher Digital Inc. (CIFR) : Free Stock Analysis Report
Cerebras Systems Inc. (CBRS) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
