Ivanhoff Capital

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The main indexes pulled back earlier last week to their rising 10-day moving average. Then, July CPI readings came a bit below expectations and most stocks just took off. This time, the biggest gainers didn’t come from biotech and software. Last week was all about energy and metals. Lithium stocks ALB, SQM, LTHM, PLL had a massive rally. Coal, oil & gas names had one of their best weeks in a while. 

The market reaction to earnings continues to be overwhelmingly positive this season. Semis, Micron (MU) and Nvidia (NVDA) guided down. Both gapped down only to completely recover by the end of the week. Going up on bad news is bullish. In the meantime, stocks that beat earnings estimates broke out on volume and followed through for the most part – TTD, SWAV, STAA, ARRY, GFS, QLYS, etc. 

The small caps ETF – Russell 2k (IWM) went up 25% in the past couple of months and it is back above its 200-day and 50-day moving averages for the first time since November of 2021. The large-cap S&P 500 is less than 1% from its 200-day moving average. Bearish rally or not, capital is getting put to work, dips are getting bought, stocks are breaking out and following through, and there are almost no distribution days. No one knows how long it is going to last. The last time, I thought we had a bear market rally was April 2020 and the markets just kept going higher. I don’t think it’ll happen again but I’ll keep an open mind.

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The typical bear market rally is a 50% to 61.8% retracement from the last major high. For the S&P 500 (SPY) that would mean 410-420. It is not far from there. In the meantime, some of the most shorted stocks have staged monstrous short squeezes. Such price action often precedes overall market pullbacks.

The job numbers last Friday surprised everyone. Why does it matter? The market rally in the past month or so has been mainly based on the assumption that the worst of inflation is behind us and the Fed’s tightening is not going to be as aggressive in the future. This assumption might turn out to be a bit premature. We will know soon enough. July CPI readings come out on Wednesday morning. As usual, we will be paying attention to how the market reacts to it; not to the numbers themselves.

Otherwise, the recent rally has been fueled by government spending (clean energy, semiconductor bills), acquisitions (especially in the biotech field), and general improvement in market sentiment – most earnings received a favorable market reaction this season. Let’s see if those catalysts will be strong enough to fight a hawkish Fed.

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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.

Disclaimer: Everything I share is for educational and informational purposes only and it should not be considered financial advice.

The charts in this video are powered by MarketSmith

We see more stocks from various sectors setting up. This season, the market reaction to earnings has been predominantly positive – many names didn’t sell off after missing estimates and cutting guidance; many broke out after stronger than expected earnings. This is a notable change in sentiment compared to the previous two earnings seasons.

Other than Facebook (META), all mega caps had positive reactions to their earnings this season – TSLA, GOOGL, MSFT, AAPL, AMZN. Why does it matter? Those stocks can only be moved by institutional money.

Two new Bills in the making have given a significant boost to two groups of stocks – semiconductors and clean energy. Those are shaping up to be among the current market leaders.

The Fed has given signs that interest rate increases will slow down if the economic data requires it. They are paying attention to inflation and jobs data primarily. GDP was negative in the past two Qs, so the US is basically in a recession. The market reads this as a reason for the Fed’s tightening to become a lot less aggressive.

Keep in mind that all major indexes are still below a declining 200dma so this is considered s bear market rally.

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.

Disclaimer: Everything I share is for educational and informational purposes only and it should not be considered financial advice.