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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.

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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.

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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.

MarketSmith powers the charts in this video

Considering the current headwinds, the U.S. stock market is holding impressively well. The Fed raised the benchmark interest rate to 5-5.25% and hinted it might be the last hike this year. SPY pulled back to its 50-day moving average. QQQ pulled back to its 20-day moving average. Both bounced strongly on Friday after a much stronger-than-expected jobs report. Employment is a lagging indicator. It seems the market is not thinking that far ahead and considers it as proof that the economy is still vibrant despite 10 rate hikes in 14 months. 

There is a new regional bank going under every week. It turns out they all did the same thing and have huge unrealized losses in long-term Treasuries. The genie is out of the bottle and people are moving their money requiring a 4-5% yield or the perceived safety of the biggest banks. While financials have taken a hit this year, the impact on the overall market has been negligible. This is one resilient market. 

Earnings reports continue to come hot. There’s no earnings and sales growth but everyone is beating the massively lowered analysts’ estimates. Either the analysts are really bad at estimating or the market simply chooses not to care about the lack of growth. It prefers to focus on the potential for future growth 6-9 months down the road. Apple is a good recent example and it represents many other similar cases. They reported 0% earnings growth and a second consecutive quarter of negative sales growth. How is that bullish in an environment of 5%+ inflation? The net result was a breakout and trading less than 5% off its all-time highs. Going up on bad news is bullish, at least in the short-term. 

This year, the so-called “sell in May and go away” hasn’t materialized yet. Plenty of stocks have remained very resilient. The A.I. theme is one of the strongest – NVDA and MSFT are the clear leaders. AMD could be another that joins them. Bitcoin continues to hover near 30k. If it breaks out, it will help stocks like RIOT, MARA, and MSTR bounce higher. Fast food restaurants are crushing estimates and breaking out higher – CMG, WING. Medical device stocks are having one of their best quarters – ISRG, SWAV, LNTH, PROF, etc. Even the biotech sector has staged a massive rally in the past few weeks. As of now, it is a market of stocks that is correcting through sector rotation.

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.