Ivanhoff Capital

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In March, people were talking about another Great Depression. Three months later, we are talking about new all-time highs and Nasdaq 10k. Other than Central Banks pumping liquidity into the system, no one can really explain why the market is going higher. It just is. What if rising prices turn into self-fulfilling prophecies and they actually help companies become stronger businesses? This is how reflexivity works. 

Last week brought another round of sector rotations – the U.S. Dollar and Treasuries dove, the leaders in software and biotech took a break, while the so-called old-economy sectors shined and had a spectacular short squeeze. There’s some element of complacency in the market right now but the market can remain frothy longer than short-sellers can remain solvent. Don’t chase blindly extended stocks but be ready to welcome dips as buying opportunities.

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What are the major traits of a strong market:

• Constant sector rotation;
• The dips are getting bought;
• Breakouts are following through;
• Good news gets a positive market reaction;
• Bad news doesn’t get a negative market reaction;
• Relatively low correlation and volatility;
• A wide-encompassing index like the Nasdaq Composite is trading above its rising 20, 50, and 200-day moving averages;
• More accumulation than distribution days signifying that institutions continue to support the market and put money to work.

The current market has met most of the above mentioned for the past month or so. What changed last week? Just a few things: Volatility picked up, the daily ranges became wider, some stocks had failed breakouts and failed breakdowns. Nothing else has really changed. The market continues to shrug bad news off and the dips are still getting bought. Software stocks continue to lead while the market is correcting through short-term sector rotations. Overall, the tone remains bullish but the increase in volatility, reversals, and daily ranges might be a sign that the indexes have entered a range-bound consolidation pattern for the time being.

Try my new subscription service which includes a private Twitter feed with option and stock ideas, emails with concise market commentary and actionable swing and position trade ideas, the Momentum 50 list of market leaders, and much more. See some of the recent testimonials.

PERFORMANCE

Here’s a Google spreadsheet tracking all closed option and stock ideas shared on my private Twitter stream and emails for subscribers.

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The charts in this video are powered by MarketSmith

The bad news keeps coming, the market keeps rising. Less than two years ago, the mere mention of more tariffs on China was enough to send the market in a tailspin. Now, they want to delist Chinese stocks from the U.S. stock exchanges and the Nasdaq 100 is within 3.5% of its all-time highs.

Biotech and software stocks have been on absolute fire – squeezing naive short-sellers who are trying to trade rationally in an irrational market. Stocks can still go higher as the current mentality is to buy the dip and mentality doesn’t change overnight. What typically changes are the market leaders as rising markets often digest gains through sector rotation.

Try my new subscription service which includes a private Twitter feed with option and stock ideas, emails with concise market commentary and actionable swing and position trade ideas, the Momentum 50 list of market leaders, and much more. See some of the recent testimonials.

PERFORMANCE

Here’s a Google spreadsheet tracking all closed option 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.