Correction Still Not Over

Just because the stock market rebounded, doesn’t mean the correction is over. Sure enough, there was a selloff on Thursday with the S&P 500 falling 1.76%. Nasdaq fell 1.99% and the Russell 2000 fell 1.23%. Tech stocks underperformed, but not by as much as most thought they would. 

Apple fell 3.26% and Tesla actually rose 1.38%. It shocked many to no end that Tesla rose. It is the face of the euphoric market getting ahead of itself. It likely rallied because of Battery Day. Hype is starting up again. A Marker article titled, “Why Tesla’s Battery Day Will Actually Live Up To The Hype” was trending on Twitter.

Tesla may have been helped by the short report on Nikola which knocked GM stock down 5.57% and Nikola stock down 11.33%. GM fell because it took an 11% stake in Nikola in its partnership to manufacture its trucks. Quite frankly, everyone needs to ask what Nikola actually does if GM is making its trucks. 

Car manufacturers sometimes partner with each other, but in this case, GM is basically planning to build the entire Badger which is Nikola’s flagship. Frankly, it's unlikely that the product will ever get made.

Negative Sentiment Shift

There may have been a negative sentiment shift which will turn into a waterfall lower. If the market was in a bubble, the situation won’t resolve itself with a mini-decline. Retail traders need to be shaken out which involves a major correction, with the story stocks taking the brunt of the selloff. 

As you can see from the chart below, the three-month average of the daily sentiment index peaked where it has in the past few years. This was a euphoric bubble. If it goes down near the previous bottoms, we could be looking at a 15% decline or more in the S&P 500. This recent correction is significant because of how overbought the market got. It's doubtful that it will get anymore overbought. Many think the S&P 500 has made its high for the year.

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