But chaos began below the surface in February 2021.

By Wolf Richter for WOLF STREET.

Friday’s stocks turned Thursday’s beautiful searing rally into a miserable dead cat bounce. And it put marks in the sand.

The S&P 500 index fell 3.6%, the worst drop since June 2020. The index is down 14% from its 52-week high and turned red year-over-year ( -1.2%). For the first four months of this year, the index is down 13.3%, the third worst start to the year, after 1932 (-28%) and 1939 (-17%).

The real fireworks took place at the Nasdaq, whose composite index plunged 4.2% and is now down 23.9% from its intraday peak in November, and down 11.7 % year over year. For April, it fell 13.5%, the worst month since October 2008, which was the month after Lehman’s bankruptcy.

The Dow Industrial Average fell 2.8% today and is down 10.7% from its peak. And it’s now also red over the past 12 months, at -2.6% year-over-year.

The Russel 2000 fell 2.8% today, is down 24.2% from its peak last November and now sits 17.7% in the hole for the 12-month period.

This chart shows the percentage change in the four indices over the past 12 months since April 29, 2021, with all four indices ending below the red line today (data via Y-Charts):

The biggest stocks are collapsing.

Today’s hero was Amazon [AMZN], which plunged 14% today. Last night it reported a big loss, the slowest revenue growth since the dotcom meltdown and exorbitant spending, topped off by a sickening outlook. It is now down 34% from its closing high in July 2021, despite a huge financial engineering operation announced in March: a 20-for-1 stock split and a massive share buyback program, just when he lost money:

The biggest stocks that were able, by their weight, to cover the chaos below the surface after February 2021 have now let go.

I added the N’s because they were once part of the infamous FANGMAN stocks., Percentage Change From The High, And Date The High Closed:

A sign of our times, Microsoft peaked in November, the day CEO Satya Nadella sold half of his Microsoft shares with totally impressive prescience, and he also let go, and he certainly knew when to throw the shares on someone else’s lap. .

The chaos below the surface began in February 2021.

The market began to crash below the surface in February 2021, and soon there was utter chaos below the surface, with dozens and dozens of IPO shares and SPAC shares and other high vol that have been systematically and brutally wiped out by 70%, 80%, 90% or more of their ridiculously overpriced highs.

Stocks that had recently gone public to stocks that had been around for a while but had been discovered by stock market jockeys during the pandemic have been pulled and shot — some of which I’ve covered in my imploded stocks. It’s the dotcom bust again, only much bigger and much worse.

But the greats kept the show going and covered the chaos below the surface. Then last fall, one big name after another started giving in, starting with Facebook trying to distract from its problems by unnecessarily changing its name to Meta. And one after another they began to wobble and stumble and dive.

So this has been in the works for over a year, and it first weeded out the smaller, more speculative, and more ridiculously over-the-top ones, summed up so well in the ARK Innovation ETF [ARKK] and the Renaissance IPO ETF [IPO].

The ARK Innovation ETF, which tracks the biggest hype and hype stocks, fell 3.6% today and is down 70% from its peak on Feb. 16, 2021. Yes, that February, when everything started to fall apart:

And the ETF IPO is down 3.9% today and is down 53.8% from its peak on February 16, 2021, yes, that one.

But “nothing goes to hell in a straight line”.

This is the saying of WOLF STREET. There will be a rebound. Downside buying is alive and well when the price is low enough. Dip shoppers who didn’t get out of the way fast enough this year were carried off on stretchers. It turns out that it is much more difficult to buy profitably in a bear market than in a relentless bull market.

Thursday’s huge rally lasted one trading day and ended at 4 p.m., and after hours it was already a mess, following Amazon’s earnings report. Thursday was a classic dead cat bounce, fueled by widespread short coverage and dip buying. And the dip buyers, if they weren’t able to sell yesterday, got pushed around today.

Nonetheless, they will still try to buy the dip and push the price up for a little while, and that can happen any day because nothing goes wrong in a straight line.

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