Ivanhoff Capital

MarketSurge powers the charts in this video.

Last week brought plenty of action to the tape. First, one of the most prominent highly levered in AI hedge funds was basically liquidated, losing 85% in a month. Then Jim Cramer urged people who bought data center stocks on margin to “sell it all, no matter what”. This message came after most of those stocks were down 50%+ from their recent highs. It is not necessarily bad advice; people should always use some type of stops, but it is a reflection of extreme sentiment, and the market likes to mean-revert every time there’s too much optimism or pessimism. This is probably why we saw a big gap and rally on Thursday. A rip within a downtrend, many would say, but then again, we have seen too many quick V-shaped recoveries to dismiss it easily. We had a similar start to the rally back on March 31st. The difference is that back then, there were quite a few AI stocks that had beautiful, strong setups and were ready to break out. Right now, we have a few software stocks that are looking decent, but they don’t have the same powerful growth story behind them – CRWD, DDOG, SNOW, OKTA, etc. More volatility and choppiness is the more likely scenario in August. 

The silver lining from last week was the reactions to MSFT and AMZN earnings. Both of the crushed earnings estimates, as they usually do. They did it by a huge margin, which means that either the analysts who follow them have no clue what they are doing, or that it is not that hard to manipulate their accounting and come up with almost any number they want. This is not the place to dive deeper into that. What matters to me as an active market participant is the positive reaction. Both MSFT and AMZN gapped up and finished strong. This is a clear shift in sentiment, as up until recently, any report related to AI has been punished with selling.

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MarketSurge powers the charts in this video.

Range-bound markets are often mean-reversion environments. We saw it last week again as the previous hit AI stocks bounced. Granted, it was a weak 3-day bounce that was met with more selling. It is hard to see a stronger recovery when the overall sentiment towards AI remains bearish. Just look at the earnings reactions. Intel absolutely crushed estimates, reporting $0.42 vs. $0.22, and still sold off. GOOGL beat estimates and still sold off, as the market is suddenly worried about its first negative cash flow quarter. If the market is looking for a reason to sell, it will find it even in the strongest earnings report.

In the meantime, groups that have been holding relatively well are starting to break down. Software was a good example last week. All of the setups that were looking great and primed for a potential breakout, reversed lower – SNOW, DDOG, NET, CRWD, FLYW, FROG, FIVN, etc.

Healthcare continues to benefit from sector rotation. These are not the types of stocks we want to see lead, because they are a sign of a weak market with low risk appetite. Crude oil is now up three weeks in a row, recovering its entire June decline. Interest rates are also perking up and have also recovered their entire June drop. The US Dollar is at a 52-week high. All of them are a headwind for the overall stock market.

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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.

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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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.

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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.