BTIG analysts said in a note that Friday's pullback could mark the beginning of a long-anticipated consolidation in the AI trade.
At one point on Friday, Nvidia (NASDAQ:NVDA), the world's third-largest company by market capitalization, saw its year-to-date gains reach an impressive 92%.
Simultaneously, the 5-month return for the S&P 500 semiconductor index stood at 84%, the highest since 1999. The analysts also pointed out that with the S&P 500 up for 16 out of the past 19 weeks and currently sitting approximately 13% above its 200-day moving average—a spread that is about as wide as it typically gets—a consolidation in this sector has been overdue.
However, they emphasized that reversal days, like the one observed on Friday, require further confirmation since a single day's performance does not establish a trend.
“The biggest questions for the overall market is if this is the start of an unwind in the YTD leaders, can we see continued rotation under the surface, or are we at a broad-based inflection where correlations rise?” the analysts wrote in the note.
Despite the presence of numerous constructive and timely charts, the case against a widespread market rotation hinges on the fact that correlations have hit their lowest levels since 2006.
“Therefore, if correlations are poised to rise, that suggests a more broad-based selloff may be near. While March came in strong like a bull, perhaps it will leave more like a bear, at least in the short-term,” said the BTIG analysts.