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MarketSmith powers the charts in this video.

The indexes are still in a pattern of lower highs and lower lows or in other words a downtrend. Until that changes, any talks about positive seasonality are fruitless. The mere fact that stocks are correcting despite bullish seasonality should get your antennas up. There’s something rotten in this market. It tried to rally on October 6th; ran for a few days and just like any other rally since August, it was met with overwhelming supply and sold off again. 

I am not sure if the market is still worrying about inflation but the 10-year yield tagged 5% last week. The jump in rates might be a reflection of a bigger bond supply to fund the ever-expanding deficit and worries about the price of oil if the Middle East conflict escalates. The net effect is the same nevertheless. Interest rates are like gravity for stocks. 

There are no growth, momentum stocks left to hide in. Anything that held relatively well up until recently, was taken out on a stretcher after TSLA missed earnings estimates. What about GOOGL, META, and MSFT some might ask? I don’t consider them high-momentum, high-growth stocks. They are slower movers and more of a cash-cow play. When cash pays 5% and stocks are falling, people have an easy alternative. 

Earnings season has begun. So far, the reactions have been mostly bearish. Regardless of beating or missing estimates, most stocks have been selling off post-earnings. NFLX was a minor exception. The expectations there were too low as the stock was crashing ahead of its report. It gapped near its declining 50dma, where it is trying to hold and build a new base. Tesla missed estimates and it was completely crushed. Next on the deck are Google, Microsoft, Amazon, and Meta. If some of them don’t really surprise to the upside, the indexes are in trouble.

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MarketSmith powers the charts in this video.

We had a 4-5-day bounce which lifted most stocks in the face of increasing inflation numbers. The consensus opinion was that the major indexes rising on bad news is how markets bottom. Sprinkle a follow-through day and a favorable seasonality and one can understand the excitement. The tech sector led the way until a treasury bond action saw a weak demand on Thursday and rates spiked again. Rates are currently highly negatively correlated with stocks. This hasn’t always been the case but this relation is what moves markets now. It’s hard to have a sustainable rally without rates pulling back. Since August, every small bounce lasted a week or so and it was met by selling that led to lower highs and lower lows. This pattern hasn’t changed yet. Until it does, seasonality is irrelevant. 

Now we have another factor at play. Geopolitical concerns have caused a bid in oil, gold, and military stocks like LMT, NOC, KTOS, AXON, SWBI, etc. Few want to be aggressively long without a hedge when a new war conflict is brewing. This is understandable. This is why markets have been so volatile. What matters is how we approach and read this tape. There are obviously new themes that are appearing and old ones that are waking up. Narratives move markets so we have to be aware of them. 

The current consensus is that if the stock indexes rally for the remainder of the year, large-cap tech stocks will continue to outperform. They’ve done so all year. The so-called magnificent seven have had a great year and are still looking much better than the rest of the market. Here’s the current YTD return of those stocks: NVDA +211%, META +162%, TSLA +104%, GOOGL +56%, AMZN +55%, AAPL +38%, MSFT +37%. This is where money hides when there are very few growth stocks and they are not performing especially well. The mega-caps rising is a defensive market move. They are swimming in cash and cash is finally earning a decent yield.

Energy is still the leading sector. The recent rise in oil & gas prices is certainly helping but I am not sure how sustainable it is. Before things escalated in the Middle East, oil was hit hard with expectations that a recession would reduce demand. Everything changed overnight. It’s hard to predict what happens next. Energy stocks have been super volatile and not easy to trade.

Gold and gold miners have been mocked for a while. They are among the best performers in the past week or so. Can they follow through and they’ll keep making lower highs and lower lows?

Can defense stocks follow through? Most have been under pressure for most of the year but the war drums have awakened them and reminded that the world will keep spending more on defense in the coming years and probably decades. 

Cybersecurity stocks were the first to break out to new highs when QQQ had a follow-through day a week ago. They are shaping up to be among the new leaders when the indexes bounce again – PANW, ZS, CRWD, PLTR, etc. 

We have to adjust to the current market reality. Bounces and drops have been more frequent. Most of the trending moves have been only a few days followed by a violent reaction in the opposite direction. There are decent opportunities for active traders but they are not for the faint of heart and certainly not for those who like to trade aggressively and use a lot of margin. The smart move for most people here is to trade less and smaller until the situation improves. 

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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.

After some back-and-forth choppy price action for most of last week, most stocks finally had a high-volume range expansion on Friday. Can this be the beginning of a year-end rally or it will be just another oversold bounce that will fold quickly? We will know soon enough. 

It all depends on interest rates and the US dollar. If they continue to pull back, this stock rally can continue. The job numbers crushed estimates on Friday (336k vs 170k estimates). The algos sold the initial number in the pre-market session. It was the final flush. The indexes started to recover shortly before the market opened and didn’t look back. The Nasdaq Composite and QQQ gained 1.6% of high volume, led by cybersecurity, software, and semis. Small caps were up 1% on decent volume too. 

Later in the day became clear that the payroll report was not as strong as the headline numbers suggest. Only 23k jobs were full-time. The rest were part-time and self-employment gigs. What matters is the market reaction and the existence of setups to buy. Unlike other follow-through days in the past couple of months, this time there are some decent setups to choose from. Some examples – CRWD, PDD, ZS, PANW, VRT, NTNTX, XPO, META, INTU, GWRE, ANET, SNPS, MOD, SPOT, etc.

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.