Ivanhoff Capital

MarketSurge powers the charts in this video.

The large caps ETF, SPY is at all-time highs. The mid-caps ETF, MDY just broke out to new all-time highs from a few-month-long base. Small caps ETF, IWM outperformed significantly on Friday. The reason – interest rates finally started to stall. Rates are deciding the sector rotations in the stock market. If rates have a multi-day pullback, we are likely to see small caps, biotech, housing, regional banks, and crypto outperform while Big Tech takes a deserved break. 

If the small caps ETF, IWM stays above 220 and begins an assault of its 52-week highs near 229, I’d focus on high-volatility stocks that have already started to break out or are setting up for a breakout – RDFN, AFRM, UPST, IONQ, SMR, AEHR, etc. They are fast movers and likely to do well in an environment that lifts most boats. The opposite is also true – those stocks tend to underperform significantly when small caps fall. In other words, they are a high-beta play. 

The new earnings season has just begun. JPMorgan and Wells Fargo beat estimates and helped the financial sector to break out. XLF gained 2% and closed at all-time highs. Regional banks performed even stronger. KRE gained 3.5% and it is looking ready to test its 52-week highs near 60. Next week, we will see many more banks reporting, as well as some banner stocks like Alcoa (AA), Intuitive Surgical (ISRG), ASML, and TSM. The last two are leading indicators for the semiconductor industry. TSM makes all the chips for Nvidia, Apple, Qualcomm, AMD, Intel, Broadcom, Sony, and Marvel. ASML provides the machines used to manufacture chips.

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MarketSurge powers the charts in this video.

Last week brought another choppy tape filled with quick shakeouts and morning gaps fading. Under the volatile surface and spikes in VIX and crude oil, we continue to see a strong bid and uptrends that remain intact.

The most curious development in the past two weeks has been the rise in rates. Yes, after the Fed cut the overnight rate by 50bps and signaled the beginning of a rate-cut cycle, the market turned around and chased yields higher. It could be the typical “buy the rumor, sell the news” action or something deeper and more significant. The economy is still strong and the job market is growing. The Fed is not in a rush. They will probably cut a couple times 25bps each for the rest of the year and the market might have expected more than that. I mention the action in rates because I believe they have a big impact on what groups are leading in the market. I don’t want to be chasing strength in small caps, solar, biotech, and regional banks while rates are rallying. I would rather be long big Tech and semis with such a backdrop. If rates begin to decline, I will position heavier in biotech, housing, solar, etc., and be lighter in big tech. I might be wrong. This is how I view the market right now. 

The new venture round for Open AI and Nvidia’s CEO appearance on TV lit a fire behind the AI sector. We saw resilience in semis. AMD broke out. NVDA and ARM are setting up for a potential breakout. Energy AI stocks have been on strong run – CEG, VST, etc. AI-related stocks have been the undisputed leaders since January 2023. It all began with NVDA and SMCI but the theme was expanded into many other names and industries. It remains the biggest market theme.

In the meantime, China followed through. It’s hard to chase and keep those stocks overnight as they have big 5-10% gaps almost daily. Unless you trade them intraday or via options, which allows you to limit the gap risk, you will probably be better served waiting for some form of a range contraction or a pullback to get involved. This is exactly what I thought last weekend and guess what – most of them just kept going higher through overnight gaps. The brokerages TIGR and FUTU doubled in one week. Crazy price action. 

I recently published a few children’s books. Check them out if you have kids or friends who have kids: Investing for babies, Trading for babies, Meditation for babies. You can find my other trading books on Amazon here.

Try my subscription service which includes a private X 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.

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.

Being a forward-looking machine, the market priced the rate cut ahead of the mid-September FOMC decision. This is why yields went down and rate-sensitive stocks went up in anticipation of the event. The market also tends to surprise the majority and often moves in a way that is counter-intuitive to most. It happened again last week. In a typical “buy the rumor, sell the news” fashion, yields rose after the rate cut decision. The jump acted as a headwind for the most rate-sensitive sectors like biotech, solar, housing, regional banks, and small caps in general. The money rotated back into big tech stocks and over the past two weeks, we saw notable upside moves in NVDA, TSLA, META, AMD, and SOXL. 

Then, on Friday we saw another lower-than-expected PCE inflation reading which confirmed that the Fed is on the right path. Rates resumed lower which acted as a tailwind to small caps, biotech, solar, and homebuilders while big tech took a break. The big question here is if we will see a continuation of that trend in the coming weeks. As Linda Raschke likes to say “The market is going to do the most obvious thing in the least obvious way”. We all know that the rates are likely heading lower but not in a straight line. There will be shakeouts along the way that will make you question everything.

In the meantime, Chinese stocks are in the midst of a monster rally. Many were up 30%+ in a week after several big upside gaps in a row. We saw a similar action in May of this year that was fully erased a few months later. The difference this time is the much bigger volume behind the move and a rising 200-day moving average which will bring more market participants to the field. If this move has more legs, we will likely sell pullbacks to rising 10 and 20-day moving averages that will get bought and offer much better risk/reward entries. 

I recently published a few children’s books. Check them out if you have kids or friends who have kids: Investing for babies, Trading for babies, Meditation for babies. You can find my other trading books on Amazon here.

Try my subscription service which includes a private X 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.

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