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MarketSurge powers the charts in this video.

The bull market remains intact. We continue to see breakouts that are following through – DDOG and SNOW are good recent examples from last week. Buying near support is also working well – for example, look at the breakout attempt in ETSY last week, which was followed by a full retracement the next day and then a big bounce again. The pullbacks to major moving averages are also working – take a look at SYM for example, which tested its 20-day moving average a week or so ago and then had a 30% bounce.

Undoubtedly, there’s an element of froth too. The dips in the speculative high-momentum areas are getting bought frequently and eagerly – quantum computing, nuclear energy, AI data center infrastructure, robots, crypto. The one big mistake one can make in a bull market is to chase blindly extended stocks. Such an approach guarantees that you will get stopped on a normal shakeout. It makes a lot more sense to be patient with entries and wait for areas of potential support. Buying range contractions near support allows for small risk entries – if we are wrong, we lose the amount we risked; if we are right, the return is multiples of our initial risk.

Any corrections we have seen in the past few months have been in the form of sector rotation. Last week, we saw small caps outperforming due to declining interest rates. In the meantime, most tech megacap stocks were under pressure. Some are pointing to weakening market breadth and increased volatility in select leaders like PLTR and META, but this is hardly a reason to turn bearish. More cautious – yes, but we are still in a bull market with plenty of mostly bullish catalysts.

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MarketSurge powers the charts in this video.

Last weekend, we discussed the market becoming a bit frothy and setting up for a potential shakeout. This is exactly what we saw. Those pullbacks are normal during bull markets, and they create better entry opportunities near rising 20, 50, and 100-day moving averages. 

When the market is in a pullback mode, a 1-2% drop in a popular index like the Nasdaq 100 could coincide with a 20% drop in a high-momentum stock. We saw that in recent high flyers in robotics, quantum, crypto, and nuclear last week. In fact, the behaviour of high-momentum stocks is a major sign of what to expect in the near term. If they just go sideways and continue to tighten up and set up, there’s probably a bounce around the corner. If they got pummeled, there’s likely more volatility ahead.

Typically, corrections in bull markets happen through sector rotation. Energy and metal stocks made a strong push last week. Can we see another group step up next week? Solar stocks seem to be setting up, but it is rare to see only one industry lead when the rest of the market is under pressure. The odds are we will see more choppiness. 

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MarketSurge powers the charts in this video.

The indexes are at all-time highs. This didn’t stop the Fed from cutting rates by 25bps last week. Powell said they are moving from a restrictive to a neutral Fed policy because there are some signs of weakening in the job market. The stock market loved it. We saw the most speculative areas explode higher—Quantum computing, nuclear stocks, and robot stocks led the charge, but there were so many other movers. In the meantime, we saw the so-called “sell the news” reaction in the US Dollar and rates, which bounced.

Price action has become a bit frothy in some areas of the stock market, so I would not be surprised if we see a shakeout next week. Typically, shakeouts take the form of a sector rotation in bull markets. The odds are that it won’t be any different this time. Any significant pullbacks to rising 20, 50, or 100-day moving averages will still be seen as good buying opportunities where one can enter with a tight stop for a swing trade.

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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.