Author: Ivanhoff

MarketSmith powers the charts in this video.

Last week started with a quick shakeout. QQQ pulled back to its 10-day EMA. Then, Nvidia reported earnings and jump-started a massive rally. This time, the bull run didn’t impact only the usual suspects – NVDA, AMD, MSFT, GOOGL, META, AI, SMCI, SYM but it stretched into many more names – AVGO, ADBE, AMZN, TSLA, COHR, ANET, TEAM, etc. The entire tech sector is in a strong uptrend. The rest of the market is lagging behind. The most interesting part about the tech power is that it is happening on the back of rising interest rates and the U.S. Dollar. The 1-month T-bills are yielding 6%. Historically, this is not considered an easy-money market environment. And yet, tech stocks can’t stop going higher.

In January when most stocks were going up, I joked that either the market believes that inflation is coming down or A.I. will have a massive impact on the economy. I didn’t really believe the latter at the time. My joke turned out to be a reality. There’s a chance that A.I. will influence our lives to the same degree that the Internet did in the late 90s. If this is true, we are in just the first or second inning of the action. The bulk of the moves, which will surely feel like irrational exuberance to many, is yet to come. Don’t get me wrong – there will be some quick, random, and violent pullbacks in A.I.-related names that will shake many people out but the dips are likely to get bought eventually. Those dips are not likely to come when almost everyone is expecting them. Many hoped that Nvidia will pull back after earnings so they can jump on the A.I. train. You know what happened. NVDA gapped up 30%, the biggest post-earnings gap for a mega-cap stock. Those dips will come when you least expect them and you are completely confident in the invincibility of the A.I. story. They will be so scary that you will question the A.I. narrative. This will be the time when the best risk-reward entry points will appear.

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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

A few times every single year, market conditions are ripe to extract extraordinary returns while you can risk very little. They usually last a few weeks before trading profitably becomes significantly more challenging. Recognizing those special times is a valuable skill because they can account for more than 90% of our returns for the year. There are times to go long, times to go short, times to go fishing, and times to really get aggressive in the market. The opportunities that the market offered in the past two weeks were exceptional. Driven by the A.I. frenzy, stocks like NVDA, AMD, NFLX, GOOGL, AMZN, META, and MSFT made remarkable short-term moves. Those names offer all the liquidity in the world and one can easily build a sizable option position in them. Risk very little to make a lot. I managed to participate in some of those setups but I certainly wasn’t as aggressive as I should’ve been. I took partial profits too soon and I didn’t add to my winners. Maybe it is my traveling through Europe. Maybe, I didn’t recognize how special those opportunities were because I paid too much attention to scary macro rhetoric about the debt ceiling, recession, the Fed, small caps, and weak market breadth. Or maybe, hindsight is 20/20. I’d like to believe that proper preparation which includes staying in the right mindset can make a big difference. 

Last week, we finally saw the rally spilling beyond mega-caps. Semiconductors had one of their best weeks this year. SMH closed at new 52-week highs. Stocks like MU, RMBS, and LRCX had major breakouts and followed through. Software stocks also made outstanding moves: NOW, SPLK, GLBE, NET, SMAR, etc. What’s interesting is that all that tech strength happened in the face of rapidly rising interest rates and the US Dollar. Those used to be major headwinds for stocks last year. It seems correlations and narratives have changed this time, at least for now.

The most important question is what’s next. No one knows with certainty, of course. My understanding is that all of a sudden many of the recent leaders are looking extended and I wouldn’t be surprised if we see some form of consolidation. They can either pull back toward their 10, 20, and 50-day moving averages or go sideways in a tight range until another catalyst appears. If this is a real breakout in QQQ, we should see money flowing into other stocks.

NVDA has been the top stock of 2023, riding on the coattails of A.I. It’s priced to perfection so I don’t expect a big upside surprise. Any potential dip will likely be bought as many institutions view it as a long-term A.I. play and some haven’t built their positions in it. It is expensive by many measures but sometimes perceived scarcity is much more important than valuation.

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.

MarketSmith powers the charts in this video

April CPI came as anticipated – 4.9% year over year and 0.4% month over month. Inflation is slowly receding. This is exactly what the market has been expecting and pricing so far in 2023. As a result, tech stocks have been outperforming the rest of the sectors year-to-date. Large caps have been outperforming small caps. 

There is something for everyone in this market. There are solid bearish and bullish arguments and each can easily play out. Our job is to remain open-minded and be ready to adjust to any major change in the tape. Last week was a microcosm of the tape year-to-date. There were some great opportunities on the long side – AMD, GOOGL, AMZN, SE, etc. There were some great opportunities on the short side as well – almost anything commodity-related was smoked, including Bitcoin if it can be considered a digital commodity. 

The biggest current narrative is that a few mega-cap tech stocks have been propping the indexes higher while the majority of stocks have been under pressure in the past couple of months. It has been a thin market with more stocks making new lows than new highs. Typically such bearish divergences lead to a correction for the entire market but they are sometimes resolved through sector rotation. I wouldn’t exclude either scenario. 

The main bullish argument is that despite declining earnings, the banking crisis, and debt ceiling rhetoric, the large-cap indexes are holding remarkably well. The Nasdaq Composite Index which consists of over 3000 stocks is trading above its 20, 50, and 200-day moving averages. The dips in SPY to its 50-day moving average are still welcomed as buying opportunities. 

Solar stock woke up on Friday. FSLR closed strong. The big question is if it can add to its gains. The follow-throughs to the upside have been limited as of late. 

I don’t believe this is a tape to be overly aggressive. I continue to try with small positions with mixed results. The tape is neither bearish or bullish. It’s a market of stocks environment where equity selection and being nimble matters. 

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.