Ivanhoff Capital

MarketSurge powers the charts in this video.

Range-bound action dominated in the past week. Most of the morning gaps quickly faded later in the day; many of the extremes mean-reverted. Most AI stocks were in a correction mode in the last three weeks. Last week, we finally saw them stabilizing and bouncing. Some of the stronger names just went sideways and are now setting up for a potential breakout – DELL, AMD, CRDO, ALAB, etc. Just as semis rose, software stocks lost momentum. After strong bounces, CRWD, TWLO, OKTA, NET, SNOW, NTAP, and AKAM, among others, took a break. Another rotation within tech.

Biotech was the super-performer of the past month or so, when XBI gained more than 20%. That momentum fizzled last week as XBI closed near the lows of its weekly range. I would not be surprised if we see it test its 20EMA. 

Despite all those sector rotations under the surface, the main indexes remain in a range. This might continue until September unless a new strong catalyst appears out of nowhere. There are plenty of individual stock catalysts on the horizon. The new earnings season begins next week with financials reporting first. In the meantime, the ceasefire in the Middle East is over, so we will keep an eye on the price action in energy and chemicals. Oil didn’t get its luster back last week, but select stocks like CF are starting to look more appealing.

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MarketSurge powers the charts in this video.

The selling in AI-related stocks accelerated last week. We can’t really say that it was sudden and surprising because there were warning signs. First, volatility increased substantially over the past month. We saw stocks moving down 30% in a few days and then just as quickly bouncing back to new highs. Short-term volatility is the highest at turning points, when momentum is lost. Then, we saw an AI-related gap and fade after record earnings from Micron – going down on good news is bearish price action. Then, Meta came out with a cloud platform to sell excessive compute, and the selling accelerated. This correction in AI is not the first. The group has gone through multiple storms that questioned the narrative – anything from China is ahead in AI to there’s too much capacity to there’s too much debt and shady deals. Guess what, none of those things mattered. Every time there was a selloff, we saw a big new contract or strong earnings report that rekindled the momentum in the space. Corrections to rising 10 or 20-week moving averages are constructive and allow for new base building. Obviously, this does not mean to be complacent and buy blindly into any dip. It is just an understanding that at this point, the current government is also heavily invested in the success of AI, and if things get worse, I would not be surprised to see the government taking 5-10% stakes in AI leaders for fresh cash inflows. This is just speculation, but not too far from reality. It is always best to wait for confirmation – bullish reversal candles before we risk any money in the space.

In the meantime, there has been a rotation into other sectors; not only the typically defensive, healthcare and consumer staples, but also the worst-performing groups of the past few months – aerospace, software, and crypto. If you think about it, laggards starting to outperform is actually a defensive sign, because it is likely caused by short covering – people are cutting risk on the short side after getting stopped on their long positions (likely AI-related).

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MarketSurge powers the charts in this video.

Bull markets correct through sector rotation. The S&P 500 and the Nasdaq 100 have basically gone sideways in a wide range since mid-May. In the meantime, the so-called Magnificent 7, which involves the biggest companies in the world, are down about 10%. The semiconductor index has experienced a significant increase in volatility. Its upside momentum has diminished. We saw another proof of it last week, when Micron had the best earnings report in its history. It helped SMH and QQQ to gap up, but those gaps faded quickly.

Money has rotated into other areas of the market. Small caps, as represented by the IWM, are holding near their all-time highs, led by biotech and financials. We saw a shade of more defensive rotation towards the end of last week, when healthcare and consumer staples started to outperform notably, and the most oversold groups attempted to bounce. Those rotations are a normal part of the cycle. They might not offer multi-week 50-100% trending moves, but they provide 5-day trend opportunities that last 10-20%. We have to take what the market is offering. It is normal for the AI leaders to spend some time in a sideways range and build new bases after the significant appreciation earlier this year. 

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