MarketSmith powers the charts in this video.
Market breadth has been deteriorating. 10-15 large-cap stocks account for the majority of the indexes’ gains year-to-date. Typically weak market breadth precedes market weakness but not always. The last time rally participation was small back in March/April, we saw an expansion into more sectors. This time we have weak seasonality so things might play out differently.
The Nasdaq 100 and S&P 500 held above their 20-day moving averages. If they lose them, we will probably see an acceleration in selling. A lot will depend on market rates. The 10-year rates are hovering around 4.3%. A breakout there will weigh down on tech stocks. We are already seeing some of them breaking down. If NVDA loses 450, it can pull back to 435.
AAPL was under significant pressure last week on news that China doesn’t allow Federal government employees to use iPhones at their workplace. The China/U.S. relations seem to be souring. The rally in Chinese ADRs lasted a blink of an eye. It failed quickly just like it did many times this year. U.S. officials keep saying that doing business in China is not possible for Western businesses anymore. Deriving a significant income from China is turning into a liability again. Just look at the price action in SBUX, NKE, AAPL, WYNN, LVS, and many semiconductors.
One has to remain nimble and tactical in this choppy environment. There are decent opportunities on both the long and short side but if you don’t stay in them for too long. Stocks like ABNB, UBER, GOOGL, and AMZN are building new bases. Cyber security stocks like CRWD, ZS, OKTA, PANW, ANET are setting up for potential breakouts. September is seasonally weak so most breakouts are not likely to last for too long. It is a scalping market environment. If the indexes lose last week’s lows, I will go heavier on the short side for a quick trade.
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