Ivanhoff Capital

MarketSurge powers the charts in this video.

We are in a strong bull market. Even exceptionally sound markets experience the occasional pullback that shakes the exuberance out and resets the bases for many stocks. The price action last week tells us that we might be entering such a corrective, consolidation period. All of a sudden we started to see an increasing number of stocks sell off or not follow through after decent earnings – MDB, MRVL, AVGO, COST, CRWD, etc. Volatility also picked up. Just last Friday, we saw NVDA going from +5% to -5% for the day. COIN went from +12% to +6%. QQQ went from +0.6% to -1.5%. 

We have to keep in mind that bull markets often correct through sector rotation. We saw it last week again – when tech pulled back earlier in the week, financials and basic materials were strong and breaking out. When tech bounced back, financials went sideways. Such types of rotations are healthy. They show that capital is not leaving the market but merely looking for better risk/reward opportunities in various sectors.

There are two most likely scenarios for the next week:

1. We see a slight correction. The silver lining here is that the best entries in a bull market come after pullbacks.
2. We see a continuation of strength with rotation in sectors that haven’t participated as much. Quite a few retailers are still due to report earnings. TGT gapped up. GPS gapped up. We might see more of those and a follow-through in the strongest gaps. 

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MarketSurge powers the charts in this video.

The small-caps Russell 2k finally closed at new 52-week highs. The recent drop in interest rates is an essential factor. IWM has been making higher lows and higher highs above its rising 50-day moving average and it is now setting up for a major breakout above 206. If this happens, it will only accelerate the current risk-on mentality. There’s always the chance of a false breakout but it would play out in several days, even weeks. For example, if IWM goes 210 and then quickly reverses below 200 and then below 195, we might see a swift downside move. As of now, things are pointing higher, and more stocks are likely to join the current melt-up that we are experiencing in the market. 

This rally is not just about semiconductors which have been the clear leader year to date. Software, biotech, retailers, and industrials have also been advancing steadily. Even energy stocks are trying to break out. Gold is setting up for a potential breakout from a multi-year base. Bitcoin and anything crypto-related has been in a steep uptrend. 

I have to point out that it’s not just milk and honey, roses and butterflies in the current tape. In the past couple of weeks, we finally saw some stocks selling off after strong earnings reports and weak guidance – SNOW, PANW. This is something to keep an eye on if it expands into more stocks because it could be a sign of a topping behavior. It only comes to remind us that bull markets tend to be low-correlation markets of stocks, where most stocks go up and not all of them. As the saying goes, stocks tend to top individually and bottom as a group.

Try my subscription service which includes a private Twitter feed with option and stock ideas, emails with concise market commentary, real-time market education, the Momentum 40 list of market leaders, and much more. See what subscribers say about my educational service.

Check out my free weekly email to get an idea of the content I share with members. How my ideas/alerts did.

I published a new trading book recently (2023). Check it out on Amazon.

Disclaimer: Everything I share is for educational and informational purposes only and it should not be considered financial advice. Read my full disclaimer here.

MarketSurge powers the charts in this video.

If you didn’t know that market seasonality is currently bearish would you even consider the bearish side right now? 

Let’s look at the facts. What is the history of market weakness so far in 2024? 

The year started with one week of selling on low volume as everyone was overly exuberant at the end of last year. Then QQQ and SPY bounced quickly and made new all-time highs within two weeks.

At the January FOMC meeting, the Fed alluded that they don’t plan to cut rates until May. There was a one-day selloff. QQQ and SPY recovered to new highs two days later.

Last week, CPI came above the estimates. There was a one-day selloff. QQQ and SPY closed the selloff gap within two days but haven’t made new highs yet. 

On Friday, PPI came above estimates. Most stocks sold off and finished near the lows of their daily range. This could potentially be the start of a minor pullback in the market. The key is seeing a follow-through. So far this year, any slight dips have been bought. We will know soon enough if anything has changed. 

In the meantime, any company that is remotely related to AI crushed earnings estimates and went higher – mostly semiconductors and software. We have also seen so many positive earnings reactions across various industries – fast food, apparel, shoes, transportation, industrials, biotech, medical devices, advertising, crypto, etc. The midcap ETF, MDY broke out from a long base. The small-cap ETF, IWM has been volatile but also making higher lows above a rising 50dma and setting up for a potential breakout near 205. These are all bullish developments. There will always be something to worry about but that doesn’t mean that you should get bearish without any price evidence for it.  

The big question you should ask yourself is – are you losing the big picture just because you are preparing for a 3-5% seasonal pullback? People seem so afraid of missing out on the next correction that they might not be benefiting enough from the current rally. Of course, it’ll end at some point and we will have a correction but there’s no price evidence that one is currently underway. The one thing to keep in mind for the next week is that the second half of February tends to be seasonally weak, especially after monthly option expiration. Being nimble and more selective in the next couple of weeks would make sense. 

Try my subscription service which includes a private Twitter feed with option and stock ideas, emails with concise market commentary, real-time market education, the Momentum 40 list of market leaders, and much more. See what subscribers say about my educational service.

Check out my free weekly email to get an idea of the content I share with members. How my ideas/alerts did.

I published a new trading book recently (2023). Check it out on Amazon.

Disclaimer: Everything I share is for educational and informational purposes only and it should not be considered financial advice. Read my full disclaimer here.