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Three developments stood out last week:

1. The small-cap index, Russell 2000 had a big breakout. Small caps are trying to catch up with large caps, which many of which have been making new all-time highs every week in the past three months. For Russell 2000 to catch up with the S&P 500 and the Nasdaq 100, it will need some heavy lifting from energy and financial stocks which are still lagging for the most part.

2. The highest-shorted stocks outperformed again. So many stocks with high short interest continue to squeeze higher: CGC, TLRY, TSLA, LK, PETS, SHAK. Some potential candidates for the next week: DDOG, PTON, INMD, STNE.

3. The earnings season has just begun. So far, a few big banks and a few semiconductor companies reported. Starting next week, it gets a lot more interesting as companies like NFLX, SBUX, INTC, and TEAM.

We also talked about the impact of tariffs on semiconductors and why AMZN is lagging the other mega caps.

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The charts on Momentum Monday are powered by MarketSmith

The market continues to climb a wall of worry. There were solid reasons to see a more significant pullback last week due to the escalation in the Middle East. The market barely blinked. We just saw another sector rotation, which this time benefited the enterprise software sector.

Granted, there are some signs of momentum exhaustion and I would not be surprised to see a short-term consolidation but for the most part, dip buyers are still in control and pullback are buying opportunities.

The new earnings season starts this week with the big banks reporting – JP Morgan, Bank of America, Goldman Sach. As usual, the market reaction will matter more than the actual numbers.

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The charts on Momentum Monday are powered by MarketSmith

The year started with a bang and new all-time highs for the S&P 500 and the Nasdaq 100 but the enthusiasm was brought down to earth on Friday after the situation in the Middle East has escalated.

A few market developments that stood out last week:

1. We saw a notable inflow in capital into emerging market stocks. The Chinese Internet ETF, KWEB gained more than 6% on Thursday and it managed to keep most of its gains during the pullback on Friday.
2. Crude oil had a big 3% gap which might be the beginning of a new trend, especially if the situation in the East escalates. Gold has also been on the rise.
3. Defense stocks ETF, XAR broke out to new all-time highs.
4. Interest rates are going down which is good news for the our debt-ridden economy.
5. Quite a few enterprise software stocks are setting up for a potential breakout: COUP, TWLO, AYX, etc.

Happy New Year and Thanks for watching/reading.

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