Author: Ivanhoff

MarketSurge powers the charts in this video.

Bull markets correct through sector rotation. Last week, we saw proof of that. While megacaps consolidated near their all-time highs, small caps erupted. The catalyst – smaller than expected consumer inflation, which is likely to lead to a rate cut later in the year. The premise is that many small caps need to refinance, and any decline in interest rates could have a big impact on their bottom line. This is why biotech and homebuilders were among the big movers last week.

Later in the week, the so-called producers’ inflation came above estimates, which led to a pullback in small caps. The index is still in an uptrend, and as long as rates continue to decline, it should keep making higher highs and higher lows.

In the meantime, crypto lives in its own world and has its own catalysts. 401 (k) accounts are now allowed to invest in crypto and private companies. BTC, ETH, and SOL made new multi-year highs before they pulled back later in the week. I wouldn’t chase them here. I would rather wait for them to set up again near their rising 20 or 50dma.

August and September of the second year after the US presidential election are typically red months for the stock market. We have not seen any evidence of that yet. There are select industries like software and cybersecurity that had sizable pullbacks, but the indexes have remained unscathed for the most part due to sector rotation. The government seems bent on the idea of inflating the debt via currency depreciation, so any sizable dip in the stock market is likely to be welcomed as a buying opportunity. 

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MarketSurge powers the charts in this video.

They say you have to pay special attention when the market doesn’t follow the usual seasonal patterns. We might be in such a situation right now. August and September in the second year after the presidential election are typically considered a weak period for US stocks. The Nasdaq 100 just hit new all-time highs last week after a brief dip below its 20-day moving average. Not everything is hitting on all cylinders. There are plenty of mid and small-cap stocks under pressure while select mega-caps are carrying the load. AAPL was the big difference maker last week for QQQ. Tim Cook finally announced that Apple wants to commit to investing heavily in US manufacturing. This was enough to lift the stock more than 10% higher. Palantir (PLTR) crushed earnings estimates again and made new all-time highs. GOOGL is making higher lows and higher highs above its rising 20dma. TSLA gained 10%. Those moves were enough to mask the chopiness and rising volatility under the surface. The saying that bull markets correct through sector rotation was proven right once again. When a few leading stocks take a breather to pull back to their 20 or 50-day moving averages, other stocks perk up and keep the indexes relatively unscathed. 

We are in a stock picker’s market. There are still plenty of stocks that are breaking out to new highs after earnings, then consolidate for a short period of time and continue higher. There are also plenty of stocks that gapped up and then quickly faded or were completely crushed this earnings season – just look at the damage in cybersecurity and software stocks lately. This market is picking its spots.

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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 might’ve hit their annual high already, at least for the next few months. US stocks tend to struggle in August and September, particularly in the second year after elections. Seasonality might sound unserious to many, but so far, the market has been following the script relatively closely. It would be irrational not to pay attention to it. 

This doesn’t mean that there won’t be any stocks making new highs and advancing. After all, bull markets are stock pickers’ markets. There are always stocks that significantly outperform the averages. The one major trend so far this season is the strong performance from companies related to AI, ranging from data center components to energy sources.  We saw it again last week with big moves in META, CDNS, CLS, GLW, MPWR, MSFT, NVT, RMBS, SANM, etc. I am not saying to go and chase those stocks. Most are extended and need time to set up again. The pullback to their 20 and 50dma are likely to attract buyers and help them form new bases and better entry points.

Try my subscription service, which 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.