Ivanhoff Capital

MarketSurge powers the charts in this video.

We are experiencing one of the weakest earnings seasons since 2022. Amazon and Google missed estimates. Intel gave much lower-than-expected guidance. Even companies like SpaceX and Meta, which beat estimates and raised guidance, sold off. There is a lot of fear surrounding the AI trade; fear that this might be a major top for the group. It seems any news is bad news now and is sold. The most interesting part about it is that it is happening just two weeks before one of the most-anticipated IPOs in the AI space – Anthropic. 

The indexes are currently in a correction mode. The weakness in semis spilled over to software. The market sold Fortinet (FTNT) and ServiceNow (NOW) earnings, and they took the entire industry with them. Small caps (IWM) rallied to their declining 50-day moving average, where they were rejected. The Nasdaq 100 tested its 50dma from underneath in each of the past two weeks, and it was rejected. In the meantime, capital rotated into defensive sectors like healthcare and consumer staples. 

Every market environment requires a different approach. April-June and August of this year allowed for multi-week swing trades. What’s currently working is intraday and very short-term swings: 1-3 days. The other alternative is cash/short-term Treasuries. There were obviously some exceptions – crude oil, energy, and healthcare have been trending up in October above their 20EMA. Consumer staples also, but were a lot more volatile. Gold and silver have been trending down below their 20EMA in the past six weeks.

The midterm elections are Nov 3rd. I believe they might end up being a catalyst for the next big move, especially if there’s an overnight selloff.

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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.

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.

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.