Author: Ivanhoff

MarketSmith powers the charts in this video.

Last week brought strong earnings from so many different industries – ASML (semiconductor machines), IBM (Cloud, AI), NOW (software), NFLX (entertainment), ALV (auto parts), AXP and COF (credit cards), VZ (telecom), LVS (casinos), PG (household products), VLO (refining), etc.

We also saw stronger-than-expected GDP growth. Granted mostly due to higher deficit spending and debt level but inflation is also coming down as expected. The economy might be just as strong as the stock market right now. If this is the conclusion the market makes this earnings season, we might see a rotation into small caps.

Small caps were in a game of whack-a-mole last week. IWM gapped up four days in a row and it faded immediately afterwards. A break above 198.50-199 would start a new leg higher. A break below 193 would start a new leg lower. 

The bulk of earnings season is still ahead of us. Most of the big tech reports in the next three weeks. Some of the big ones next week are MSFT, AMZN, GOOGL, META, AMD, etc. Many of them have already made a significant move in the past few weeks to a few months. A positive earnings surprise might be already baked in. This means a gap-up might be used as a reason to take some profits in some of the more popular names.

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MarketSmith powers the charts in this video.

SPY and QQQ closed at all-time highs but we are in a stock picker’s market, not a wave that lifts all boats. The tape has been rather choppy with many fades and frequent changes of direction – not easy to navigate. 

There was a quick rug-pull on Wednesday (Jan 17th) – most stocks gapped down. A large number of tech stocks and ETFs tested their year-to-date volume-weighted-average price on that day and found support there – QQQ, FNGU, SOXL, META, AMZN. The real leaders like NVDA and AMD didn’t even blink during that pullback for the indexes. 

Then, on Thursday (Jan 18th), Taiwan Semiconductors (TSM) crushed earnings estimates and confirmed that the recession in semiconductors is over, mostly due to an enormous demand for AI-related chips. All semiconductors stocks gapped up lifting most of the tech sector with them. On Friday (Jan 19th), Super Micro Computer (SMCI) beat estimates and raised guidance, staging an acceleration in anything AI-related. 

The bulk of earnings season is still ahead. So far, we can say that AI remains the major theme in the market and the main source of growth. This is why stocks like AMD, NVDA, INTC, and many others are rising in anticipation of their earnings reports.

Small caps ETF, IWM tested its 200-week MA where it found support. It’s all about interest rates here. IWM has been almost perfectly negatively correlated to the 10-year yield in the past six months. If rates resume lower, small caps are likely to quickly catch up with large caps.

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Check out my free weekly email to get an idea of the content I share with members. How my ideas/alerts did.

I published a new trading book recently (2023). Check it out on Amazon.

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

MarketSmith powers the charts in this video.

Interest rates continued lower which helped tech stocks to stage a strong bounce after a weak start of the new year. Most large-cap tech names gained 5-10% on low volume and made new highs. The performance of other sectors was far from impressive. Financials, biotech, and retailers finished near their weekly lows. 

QQQ and SPY made higher lows and are setting up for a potential breakout near their all-time highs. It’s a different question if this breakout can follow through. It seems likely that we have entered a period of choppiness where many breakouts and breakdowns might fail.

Small caps IWM was flat for the week and continues to be down about 4% for the year. IWM needs to clear 197-198 to resume upside momentum. It might test its rising 50dma around 188 first.

The tensions in the Middle East led to a bounce in uranium, shipping, and military stocks. Vix and Gold also received a bid on Friday. It doesn’t seem likely that the situation will escalate and the market might be overreacting. This is why I wouldn’t chase those industries, at least not now. 

The new earnings season is here. It started with a few big banks – JPM, BofA, Citi, Wells Fargo, an airline – Delta, and a health insurer – UnitedHealth. All of them sold off. Next week on deck is a bunch of more financials – GS and MS; also a couple of tech stocks like TSLA, NFLX, and ISRG. The earnings calendar gets a lot busier in a couple of weeks. The market tends to be choppy during earnings season as it digests new information. The market has priced in a few interest rate cuts for 2024, so stocks that miss earnings estimates are likely to be more vulnerable this quarter compared to last year when the Fed’s interest rate decisions and comments were the major driving force.

Try my subscription service which includes a private Twitter feed with option 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. How my ideas/alerts did.

I published a new trading book recently (2023). Check it out on Amazon.

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