Ivanhoff Capital

MarketSurge powers the charts in this video.

Crude oil has almost doubled in a little over a week since the war in the Middle East started, and the stock market is starting to take it seriously. South Korea, Japan, and Europe are down 15-20% in the past week. Small-caps Russell 2000 (IWM) is down almost 12% since its all-time highs.

Financial markets are currently in a risk-off mode. Sometimes, risk off means a mean reversion. We saw it last week. Leaders went down, laggards jumped. South Korea, Europe, Japan, emerging markets, small caps, semiconductors, healthcare, and industrials broke down. Software showed incredible relative strength all week – either the market believes it overreacted to the downside and is correcting its recent behavior, or trend-following funds were forced to cover their shorts to reduce risk. Not surprisingly, energy and defence stocks also gained last week.

If this correction continues, the next stage is panic selling, when everything goes down fast. This is what creates the opportunities down the road. The phase after that is bullish divergences – when the indexes keep making new lows but select growth stocks make a higher low and build new bases. These would be the future leaders that could double and triple during the next bull run. 

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MarketSurge powers the charts in this video.

Energy stocks have been the strongest sector year-to-date, and now we know why. The escalation in the Middle East is not a surprise, and the market has been anticipating it for some time. Crude oil and gold are having a sizable upside gap, US stocks are slightly lower, and Japanese and European stocks are the most affected. Historically, the US market rallies after the beginning of new wars, especially if the market realizes that the war is not likely to last long. If the oil infrastructure in the Middle East is not impacted, oil prices will also likely stabilize.

In the meantime, another Mag7 stock crushed estimates and sold off. The grand-daddy of AI, NVDA, is basically flat since last August despite record-breaking quarters and constant guidance increases. Institutions are selling. There’s distribution in tech. QQQ is still stuck in a range between 640 and 580. I wouldn’t be surprised if the lower end of the range is tested first in the next few weeks.

Financials remain weak and are bear-flagging below their 200-day moving average. The defensive, consumer staples, utilities, and healthcare are leading the market. The only tech exceptions have been fiber optic, memory chip, and HVAC stocks, which are some of the main AI infrastructure plays.

In other news, XYZ (the former Square) is planning to cut half of its workforce due to AI efficiencies – 4,000 people. Its CEO said that many other companies are likely do the same. This is a trend to watch. It is a slippery slope. Yes, your margins will improve initially, and your stock might bounce, but if every company does it, then the weaker consumer will impact everyone’s bottom line eventually, and the market might get spooked. The Fed can’t solve that by lowering interest rates.

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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.

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.

The indexes continue to look for direction, but the same trends persist under the surface:

Software remains a minefield. I don’t know how capable the so-called vibe coding really is in the long term, but any news release on the subject is tanking various parts of the software space. Cybersecurity stocks were hit hard on Friday after Antropic revealed Cloude Code Security. The market is in a “shoot first, ask questions later” mode. Even if those AI threats prove unsubstantiated and software companies continue to grow their earnings, the process of multiples reduction is likely to keep the pressure on their stocks. 

In the meantime, semiconductors and any AI infrastructure stock remain notably strong – GLW, AAOI, LITE, TSM, ASML, CIEN, SNDK, MU, JBL, COHR, LRCX, MOD, VRT, etc. NVDA reports earnings on Feb 25th after the market close. The stock is essentially flat since August of last year, while the semiconductors ETF, SMH, is up about 40% since then.

The Supreme Court said Trump’s tariffs are unlawful. There was a quick spike in retailer stocks on Friday that quickly faded. The market will need some time to fully digest that information. A couple of things that stood out on Friday were the relative strength of Big Tech vs small caps and the continued ascent of the South Korea ETF. EWY is now up more than 40% year to date.

Sign up for my premium service to read the rest of my market view and ideas.

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.