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The S&P500 and the Nasdaq 100 had a minor 2-3% pullback but finished the week on a high note. Inflation-sensitive stocks fell because of the latest Fed minutes revealing discussions about tapering later in the year. The reopening stocks were under pressure because of the rising Covid cases around the world. In the end, the market was saved by another sector rotation – this time in tech, especially large-cap tech stocks.
One would say that this is the same tape as in the middle of last year when anything tech outperformed in the face of lockdowns and restrictions, especially considering the recent rally in grocery stores and discount stores like BJ, COST, KR, ACI. The difference this time is that department store stocks were also strong – M, JWN, KSS.
In the meantime, many cryptocurrencies jumped higher – boosting crypto-related stocks like MARA, RIOT, SI, MSTR, COIN. At some point last week, I thought that the speculative frenzy in crypto will siphon capital from software stocks but this didn’t happen. Most of them held well and are looking higher – IGV, MDB, ZS, etc.
Overall, the decline last week has built some good risk/reward setups in strong stocks that held above their 20-day moving average. We picked up some last Thursday and Friday and I share below others to consider.
I am leaning bullish for the first half of next week but I also don’t think it’s a time to be overly aggressive. Currently, the bearish scenario involves the major indexes (IWM, SPY, QQQ) losing their lows from last Friday. The small-cap ETF – IWM, is still looking the most vulnerable – making lower highs below its 50-day moving average. If it loses 211, it can drop quickly to 205.
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