Stocks Bounce Again

MarketSurge powers the charts in this video.

By now it should be clear to everyone that the Fed doesn’t have a specific plan for when they will cut rates this year. Powell keeps saying they are taking the data one month at a time and adjusting their view. This is why stocks rallied when the jobs number on Friday came well below estimates. A weakening jobs market improves the prospects for an earlier rate cut.

We are already starting to see some easing. The pace of the Fed’s balance sheet reduction is slowing down. The Treasury plans to start buying $2Bn worth of Treasuries weekly. This is why the dips in the stock market are likely to continue to be bought.

We are still in the midst of earnings season. Two trends stood out so far – upside gaps often faded while downside gaps followed through. These are both bearish reactions. And yet, the indexes are holding relatively well. SPY, QQQ, and IWM have made a couple of higher lows and higher highs in the past two weeks. Small caps are firmly back above their YTD VWAP. SPY and QQQ rallied to their 50-day moving average. Going above their Friday highs will likely lead to FOMO chasing as many market participants are underinvested. Losing Friday’s low will likely lead to a quick gap close. 

In the meantime, Chinese stocks had a second strong week in a row. Sentiment towards Chinese names has been extremely bearish for a long time. For me, they remain short-term trades and not investments. I played this move via PDD Calls, which went from 1.30 to 10. I sold early but still captured a decent size of the move.

We are in a market of stocks environment. The popular, well-known stocks have had some troubles this earnings season. They either gap up and then quickly close their gaps or gap down. The earnings winners this season are lesser-known names that are not widely known by institutions – HWM, PI, TMDX, ASPN, CVNA, SNAP, PRCT, TNDM, PRDO, CRS, ENVX, TWST, LIVN, SFM, etc.

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