Well, it looks like the market finally started its correction.

Everyone suddenly panicked because Michael Burry took a short position in Palantir and Nvidia. But just because Burry is short doesn’t mean the market has to collapse right now. He started shorting the housing market in 2005 before it eventually collapsed in 2008. It took two years before it played out. But the market right now simply needed an excuse to pull back, and this was enough. It’s not surprising.

This was already the scenario we talked about in the Sunday update:

This streak won’t last forever. It will eventually end. When it does end, the pullback often comes quickly because long stretches of strength makes investors overconfident and complacent. That complacency is usually what creates sharp corrections.

The market is being carried by a smaller group of stocks. That doesn’t break the bull case, but it does make the market more sensitive to any weakness in the leaders.

It’s more important than ever to be selective in the very best names. The market is rewarding strength and punishing weakness quickly. There is very little room for mistakes or “good enough” results.

And sometimes even strong results just don’t matter in this kind of market.

Dave reported a very solid quarter and even raised full-year guidance by $50M to $550M. The stock initially jumped around 18% on the news, but then completely reversed and was down 7% before it went back to flat. That kind of reaction says a lot. It clearly shows what kind of environment we’re in right now. The market just doesn’t really know what it wants right now. It’s undecisive and emotional.

Palantir is another interesting example. After its earnings report, the stock was up 7% before reversing sharply and down 10% at one point.

This is a period where less is more.

Since the April lows the market was quietly trending higher. That has changed recently. Reactions are more volatile and more emotional.

That’s usually not a supportive environment for growth stocks or taking excessive risks in general.

Momentum is weakening across many growth names. This is clearly visible on the Market Model. It shows how the market internals have deteriorated significantly.

On top of that, crypto is getting completely decimated. It lost $1T in market cap in less than a month…

There’s no reason to rush into the market right now, especially if you had a great year so far. There’s also no reason to turn bearish. But it’s best to more cautious for the time being and try to give back as little as possible.