Ivanhoff Capital

The charts on Momentum Monday are powered by MarketSmith

The long-expected breakout in small caps finally happened. IWM cleared 160 and finished near the highs of its weekly range. There are few more bullish signs than small caps breaking out above a multi-month resistance and starting to outperform. 

Biotechs shined again and many accelerated their ascent. Don’t chase overextended biotechs. There are constant sector rotations in bull markets, so we are likely to see pullbacks in this sector as well. Sometimes the stocks that seem the most extended continue to vastly outperform due to a short squeeze or an acquisition rumor. This is why nimble intraday traders often focus on this type of stocks – super high short-term momentum coupled with big short interest.   

Quite a few software stocks continues to rise. SHOP had a beautiful big-volume breakout and it is now setting up near 340 for more. TEAM is consolidating between 125 and 130 with 130-131 being an important pivotal area. OKTA and MDB are in a range contraction mode and seem ready to bust higher.

Semiconductors tried to bounce but didn’t finish the week on a high note. Their destiny seems to be related to China and the U.S. support of the protests in Hong Kong wasn’t great news for both. Chinese stocks were a mixed bag last week. While many of the large-cap Internet stocks did really well – BABA, NTES, the overall Chinese market lost ground.

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The charts on Momentum Monday are powered by MarketSmith

The expected breakout in the small-cap index Russell 2000 hasn’t happened yet. Instead, IWM tested its rising 20-day exponential moving average. If this bull market has more legs, the breakout will eventually happen. It just needs more time.

The biotech sector shined and had one of its strongest weeks this year. Many of the stocks in the sector are extended so chasing them here is not a good idea from a risk-to-reward perspective.

The other leadings sector – semiconductors, is down multiple days in a row. Many of the semis have already given up their earnings gaps: AMAT, QCOM, TER, or are testing their 50-day moving average. NVDA is so far holding the front and showing relative strength by going sideways.

Maybe next week, we see a reversal – biotechs will pull back while semiconductors rally. This type of sector rotation happens all the time in a bull market. Select sectors pull back but the major indexes remain near their 52-week highs.

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The charts on Momentum Monday are powered by MarketSmith

The small-cap ETF Russell 2000 – IWM is setting up for a potential breakout near 160. There’s a chance it will try to catch up with the large-cap ETFs, SPY and QQQ which have been making new all-time highs for three weeks in a row.

The biotech sector continues to be on fire. For a third Friday in a row, IBB went up more than 1.5%. The smaller-cap biotech ETF, XBI is also setting up for a potential breakout.

Biotech is not the only healthcare sector that has been hot in the market. There are quite a few medical devices stocks that are breaking out or setting up for a potential breakout: ISRG, INSP, GMED, NVCR, etc.

The market continues to show its affinity to semiconductor stocks. Those that crushed estimates this earnings season, gapped to new 52-week highs and followed through higher. Those that missed estimates and initially pulled back have managed to bounce back for the most part.

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