Ivanhoff Capital

MarketSurge powers the charts in this video.

Anything AI is still in a correction mode. AI stocks led the market on the way up in the first half of the year. Lately, they have been leading it on the way down. After testing its 50-day moving average, the Nasdaq Composite broke down and might be on its way to test its 200dma or its summer lows near 660. The semiconductors ETF, SMH, is already at its 200-day moving average and only 4% away from its summer lows. The S&P 500 is also below its 50dma but has held a lot better than QQQ because of rotations into energy, retailers, healthcare, and consumer staples.

The big question that remains is whether the groups that are currently showing relative strength will also crack or whether they can lead the market higher. Healthcare and consumer staples are defensive sectors. They lead when the market is in capital protection mode, which happens during corrections. If crude oil and energy stocks continue to make new multi-year highs, inflation expectations also rise, which means more rate hikes and a headwind for the rest of the market. 

Software stocks have been incredibly resilient so far. The software ETF, IGV, is still trading above its June high. Compare that to the semiconductors SMH, which is more than 20% below its June high. We saw that resilience last week, when most software stocks had a powerful bounce while anything AI-related was under heavy pressure. This group could lead if the correction ends next week. It is also a group that is likely to be targeted if the correction persists.

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MarketSurge powers the charts in this video.

Anything AI-related is currently under distribution, which notably accelerated last week. Software and semis lost their 50-day moving average last week. Biotech is on its third week of declining below its 20- and 50-day moving averages. Small caps are on a 9-week losing streak and below their 200-day moving average. Tech mega caps are in a better shape, but even META and AAPL are starting to crack. The market is in a correction mode.

Last week, we saw a rotation into defensive assets – US Treasuries, consumer staples, healthcare. This is typical stage one of a correction. Stage two is widespread panic selling – everything goes down together. Stage 3 is characterised by bullish divergences – the indexes make new lows, but select stocks are making higher lows and starting to show clear relative strength. These stocks are the likely new leaders. A correction might last a couple of weeks or a couple of months. In 80% of the cases, it leads to another strong rally. In 20% of the cases, it leads to a multi-month bear market.

In the meantime, crude oil keeps pushing higher, and energy stocks are the current market leaders. Both CPI and PPI September inflation reports came well above estimates. So unless the Fed plays complacent or unemployment suddenly spikes, we are likely to see more rate hikes this year. 

The new earnings season has just begun. Most companies tend to beat earnings estimates. What matters is the market reaction. When the market sentiment is sour, most stocks sell off even after strong earnings. When the market is in a good mood, most stocks go up eventually, even after questionable earnings reports.

My subscription service includes a Discord room and private X feed with options 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. See how my ideas/alerts performed.

You can find my trading books on Amazon here.

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.

AI stocks are back in under-pressure mode. The market might be discounting tighter regulations if there’s a power change in the Senate and the House after the midterm elections. In addition, OpenAI’s leaked revenue is well below estimates, which has likely led some investors to reconsider their allocations to AI-related stocks for now. The semiconductor ETF, SMH, pulled back to its 20-day EMA around 600. If it is going to bounce, this is a great level. Losing it would likely lead to a test of its 50-day moving average around 580.

If you ignore the elevated volatility in anything AI-related, the situation is not dramatic. SPY and QQQ are consolidating near their all-time highs. Crude oil and rates are pulling back slightly. Small caps (IWM) are trying to stabilize near their 200-day moving average.

Meanwhile, capital rotated into software. IGV is still about flat year-to-date, but it has been making higher lows and consolidating near its 52-week highs. Cybersecurity stocks continue to be the leaders in software – CRWD, OKTA, PANW, NET, CIBR, etc.

Brazil had a huge gap after its elections. Similarly to what happened to Argentina a few years ago when Milei was elected, the financial markets tend to react favorably when a more capital-friendly candidate wins. Brazil’s elections are not over. They have a second tour in a couple of weeks, and if there is a surprise, those gaps will be quickly reversed. So far, the leaders in this space are XP, STNE, NU, PAGS, PBR, etc.

My subscription service includes a Discord room and private X feed with options 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. See how my ideas/alerts performed.

You can find my trading books on Amazon here.

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