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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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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.

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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.

Bull markets correct through sector rotations. This is exactly what we have been seeing lately. While recent leaders have been pulling back to their 20 and 50-day moving averages, capital has been rotating into defensive sectors like healthcare, consumer staples, and utilities. I don’t know how long this rotation will last. It makes sense that many market participants are reducing risk ahead of the FOMC meeting on Wednesday and the earnings reports in the next few weeks. 

The latest earnings season is just getting started. So far, we had financials crushing estimates and rising for the most part. The three momentum stocks that reported earnings pulled back – Tesla, Netflix, and Intuitive Surgical. All of them beat the always conveniently-low earnings estimates. All of them had a significant rally ahead of their earnings which typically means that any good news was already priced in. This is one of the reasons we saw all three selling off. They are all in an uptrend on a daily and weekly time frame. It is normal to see them test their 50-day moving average after they broke below their 10 and 20-day moving averages.

The semiconductor sector also had two strategically important companies report. ASML, which is the biggest producer of machines that make chips, and Taiwan Semiconductor, which is the biggest producer of the actual chips in the world. Both sold off slightly after their reports. TSM guided next year’s revenue down citing the cyclicality of their business. Their fastest-growing component is AI-related chips. They currently account for only 6% of their total revenue but are expected to grow at a 50% compound annual growth rate in the next 5 years and increase to low teens percent of revenue. So yes, demand for Ai chips is hot and it is expected to remain so in the next few years. I don’t know how much of that is already priced in but it also explains why every dip in NVDA and MSFT is getting bought and why every major company is working on A.I. 

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.