Author: Ivanhoff

MarketSmith powers the charts in this video.

If inflation expectations are diminishing then why are interest rates still rising? The 10-year yield is close to multi-year highs. I don’t know if rates are the reason for the recent weakness in tech stocks. It would make sense but they didn’t have a big impact for most of 2023 as big tech stocks had a substantial recovery. What matters is that the number of distribution days in the Nasdaq 100 has quickly increased in the past couple of weeks. QQQ sliced below its 50-day moving average without having the typical at least one-day bounce near that level. We saw a similar price action in many of the 2023 leaders like NVDA, MSFT, NFLX, SMH. Everyone who waited for those stocks to pull back so they can buy the dip suddenly doesn’t want to buy them anymore; either that or selling is overwhelming any buying attempts.

The Nasdaq 100 is down less than 6% from its 52-week highs; the S&P 500 is down 3%. In the meantime, many high-momentum, high-beta stocks are down between 10 and 50%. Imagine what would happen if the indexes continue their pullback in August and September and drop 10-15%. The current earnings season has been a wake-up call for many of those high fliers. They went up significantly ahead of their earnings and came crashing down after them.

The one area of the market that has continued to thrive is the so-called cash cow stocks of companies that produce high free cash flow. The ETF COWZ is near all-time highs. It helps that the energy sector accounts for 35% of the ETF. eight of its top ten holdings are energy stocks – CVX, MRO, VLO, EOG, PSX, PXD, LNG, FANG. Not the sexiest and fast-moving stocks but energy (XLE) is the one sector that is still above its 10 and 20-day moving averages. Healthcare (XLV) is there too.

Choppiness and indecision are normal during earnings season. Add to it the seasonally weak August, September, and October in a pre-election year and one should not be overly surprised by the weakness in many tech names. The overall bull market is still intact but it is currently in a correction, choppy mode. Declining markets require a different approach than rising markets if you want to keep your profits from earlier this year. Some of the helpful moves are reducing position size, trading less in general if you swing trade, and being extra nimble on your intraday undertakings. The good news is that the best swing and position trade entries always come after a correction. The deeper the correction, the better the opportunities afterward. Corrections should make you smile, not worry. 

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MarketSmith powers the charts in this video.

The rating agency Fitch downgraded the US credit a notch. The US government is not considered a risk-free borrower anymore. The move rattled financial markets and potentially started a correction. Will we see a similar story to 2011 when Standart & Poor’s stripped the US from its AAA rating? Back then, the stock market was in free fall weeks ahead of the rating drop. The difference this time is that the main US indexes were within 5% of their all-time highs before the news hit the wire. Back in 2011, capital flowed to the perceived safety of treasuries. This time around, Treasuries were hammered before and after the rating announcement. Why do I even mention the US credit here? Last year, Treasuries and Nasdaq 100 were highly positively correlated. They moved together, hand and hand. This year, we saw a big divergence. Most tech stocks have managed to rally significantly in the face of rising interest rates. Can this divergence continue longer has been a question I asked for a few weeks now and the answer so far has been – yes. There are two main reasons for that:

1. The market doesn’t believe interest rates will continue to rise because inflation expectations have been declining. 
2. Tech earnings continue to beat estimates by a significant margin on many occasions. All the cost-cutting that big tech companies did late last and early this year went to their bottom line. The market anticipated that and has been bidding them 6-9 months in advance.

I believe we are still in a bull market but we are currently in a pullback, choppy, range-bound mode that can last through August and September. I wouldn’t be surprised to see QQQ and SPY testing their 50 or even their 100-day moving average in the next few weeks. For me, this means focusing on short-term setups, trading less, and using a smaller position size so I limit any drawdown and frustration and be better prepared for the next trending market which is probably just around the corner.

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Disclaimer: Everything I share is for educational and informational purposes only and it should not be considered financial advice.

MarketSmith powers the charts in this video.

The Fed raised interest rates again to 5.5%. The market barely blinked. Volatility and distribution days have picked up as of late but for the most part, dips in market leaders are still getting bought. The S&P 500 and the Nasdaq 100 are about 5% from their all-time highs. The odds that they will test those highs at some point this year.

We are in the midst of a new earnings season. Google, Meta, and Microsoft crushed earnings estimates. MSFT pulled back to tis 50-day moving average where it found support. GOOL and META made new 52-week highs. ROKU, LRCX, BA, ALGN, AXNX were among the big earnings gainers last week. SNBR, SPOT, ENPH, CROX were among the stocks that had the biggest post-earnings pullbacks. Apple and AMD are on deck next week. 

There seems to be a new group of stocks that is shining every week. Semiconductors ETF, SMH gained 4% for the week, closing at new all-time highs. It was overshadowed by China-related stocks, most of which rose more than 10% for the week. Those constant rotations are keeping speculators on their toes. I personally participated in those moves via SOXL for semis and via CWEB, BABA, TCOM, BIDU, BZ options and stocks.

Try my subscription service which includes a private Twitter feed with option and stock ideas, emails with concise market commentary and actionable swing, intraday, and position trade ideas, the Momentum 40 list of market leaders, and much more. See some of the recent testimonials.

PERFORMANCE

Here’s a Google spreadsheet tracking all closed options and stock ideas shared on my private Twitter stream and emails for subscribers.

Check out my free weekly email to get an idea of the content I share with members.

I published a new trading book recently. Check it out on Amazon.

Disclaimer: Everything I share is for educational and informational purposes only and it should not be considered financial advice.