Derailing the rally - is a perfectly logical (even overdue) development, given the extended mega-cap pricing and desire to 'nail tax-sale gains' in 2024 not 2023. It was and is a stumbling around process anticipated to start the year.

Freepik

Nothing in the news today modifies our expectations for a choppy start, likely to be followed by rebounds later this month (even into February) especially in small caps that have liquidity, decent business or prospects, or are disruptive.

The sectors evolving and deploying in 2023 will likely mature more in 2024. It is just not evident on 'day one' nor should it be. Retrenchment then higher.

There are risks in all this of course, including the geopolitical spectrum that's a constantly boiling cauldron ready to spill-over, or alternatively cool down a bit.

With individual stocks, AEHR Test Systems (AEHR) is likely the most speculative for the moment.

One other stock worth focusing on is ONDS Holdings (ONDS). They are in the mix of evaluations and/or contract negotiations with several organizations and/or the end-users. Those range from Mass. Dept. of Transportation, to maybe one or more railroads, to Police and First Responder Organizations or military units in Israel, perhaps elsewhere, and (we don't know) the upcoming DoD project that will provide many Army units with personal or Unit drone systems more or less for intelligence, forward artillery spotting purposes, and so on. There are competitors, but within metro areas, ONDS is just one of two companies with an FAA Type Certification for autonomous operation over populated areas.

Market X-ray: 

Evening futures are only down a tiny bit, Japan opening on the lower side (this report is late enough to see that), while Oil has a shot at more stabilization and recovery after the rise and fall seen on Tuesday.

Now pundits will recognize the obvious spike and reversal, and some hefty declines (really overdue but postponed pending tax-gain realization in 2024, pushed into the New Year as we've discussed for some time). And they start to call for sell-off's.. sorry but this is what happens from ascending wedge not allowed to settle-back for an extended period of time. It's not very unusual.

In a strange sense, if you want to see S&P at higher prices down the line, it's helpful (even essential) to see the big-cap Index peak at the year's start given what has preceded. It's not about 'hope springing eternal', just a cooling-off.

Bottom-line: 

We talked about an S&P (and mega-cap tech) stumble early in the year, and that's how we start 2024. A handful of small-caps were on the neutral to firm side, but most were almost immobile.

In the big-cap Indexes, Tuesday was one of the heaviest negative starts we'd seen in years, but it was after the ridiculous overzealous late year rally. For a long time I've had no interest in chasing expensive big-cap techs, just holding core positions in a few retained for a long time, and no more. Similar for small specs.. which have been generally moribund for some time.

It will likely take a conclusion to this consolidation (retreat) to wake things up in smaller stocks, while too many are trying to assess 'why' certain big stocks tanked Tuesday (there's no why, they were overdone and tax-gain selling as holders didn't want to ring the cash-register preferring use of their funds for an additional year.. now some will see that short-term dips exceed tax liabilities at the highs.. though generally nobody catches the exact highs.. or lows..) but I think we did as well as feasible with the low this past October. This is 'noise' at the moment .. not a trend.. could become an overdue 'B' wave, as I've said.

More By This Author:

Market Briefing For Tuesday, January 2
Market Briefing For Thursday, December 28
Market Briefing For Wednesday, December 27