Ivanhoff Capital

MarketSurge powers the charts in this video.

All major indexes had a big bounce after the selloff the week before. Now they are at or approaching potential resistance where sellers might show up again. 430-435 for QQQ, 199-200 for IWM, 508-510 for SPY. How they behave around those levels will depend on the market reaction to earnings. Apple, Amazon, and AMD are just a few of over 800 companies that report next week.

What do we know about earnings season so far? The stocks that were priced for perfection are very vulnerable. Going into last week’s report, META was a big earnings winner for five quarters in a row. Sentiment was extremely bullish. The company gave a soft guidance and it was obliterated. It dropped from 500 to 400 overnight. Granted dip buyers stepped up and it finished the week at 440. This is just another timely reminder that there are no sure things during earnings season. Strong companies that seem invincible that drop 20%. This is why I don’t like to sell options premium ahead of earnings events. It doesn’t make sense to try to make $3 if the downside might be $50 per option contract. I’d like to be on the other side of that bet.

Google was on the other side of market reactions – they missed and gapped down in Q1 but quickly recovered to new all-time highs. The report from last week confirmed the bullish sentiment and the stock gapped even higher, where it faded. Such big earnings gaps in heavy stocks are often used as liquidity events by institutions that want to ring the register. 

The one clear trend this earnings season is the massive capital spending by major tech companies. This is extremely bullish for companies that help to build AI infrastructure – NVDA, AMD, MU, SMCI, DELL, MSFT, GOOGL, AMZN, etc. The question is how much of that has already been priced in by the market? If the market is in a sour mood, we can still see the stocks of companies that report strong earnings pull back due to P/E multiple compression and vice versa. 

In the meantime, restaurant earnings have been on fire. CMG broke out to new all-time highs lifting many others in the space – WING, CAVA, SHAK, TXRH, etc. WING reports earnings next week.

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I published a new trading book recently (2023). Check it out on Amazon.

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

MarketSurge powers the charts in this video.

Tech stocks just had their worst weekly drop since the bear market of 2022. This time it’s not because interest rates are rising or growth is slowing. It’s very simple – escalating tensions in the Middle East are causing a risk-off behavior. Risk-off means reducing exposure to the most volatile parts of the market – momentum stocks and rotating into lower-beta, more defensive sectors like financials and consumer staples. If the situation doesn’t worsen any further, tech stocks will probably recover just as quickly as they fell. 

No one knows what will really happen in the next few weeks. The odds are that sane heads will prevail but the market is not taking this chance and money managers around the world are reducing risk and hedging by buying put options, which causes further downside pressure. Let’s entertain for a moment the possibility of a war escalation. No one wants it but let’s imagine this scenario so we are better prepared. Stocks will likely fall further. Maybe we will see a 20% correction in the major indexes and 50%+ correction in most momentum high-flyers. If this happens, it’ll likely get to a point where the Fed will decide to cut rates earlier than currently anticipated and stocks will have a huge rally – from lower levels than now. This is the worst-case scenario for bulls – if you are patient and protect your capital during this potential rout, you will have incredible opportunities when it’s done.

They say that there’s no support during steep corrections. We saw that last week. None of the important potential support levels held for more than one percent bounce. The selling pressure was too overwhelming. Some overleveraged momentum funds were probably being forced out of their positions due to margin calls. 

Let’s not forget that the new earnings season has just begun. We are already seeing some emerging trends. The company that kick-started the big rally in semiconductors in the first quarter, TSM beat and guided higher again but this time, it sold off. The entire semiconductor sector was under pressure. SMH lost 10% for the week. NVDA dropped almost 14%. ARM fell 30%. NFLX also reported strong numbers but it still sold up – dropped 9% in one day. So far, the reactions to tech earnings are not very bullish. In the meantime, financials have been a mixed picture. JPM beat estimates but sold off. WFC, GS, MS went up. Airlines also broke out after strong sectors – UAL, ALK.

We are currently in a risk-off tape. For me, this means focusing mainly on intraday setups and the occasional short-term swings (2-day hold); waiting for a market bounce, lower volatility, and tighter setups for multi-day swing trades.

Try my subscription service which includes a private Twitter feed with option and stock ideas, emails with concise market commentary, real-time market education, the Momentum 40 list of market leaders, and much more. See what subscribers say about my educational service.

Check out my free weekly email to get an idea of the content I share with members. How my ideas/alerts did.

I published a new trading book recently (2023). Check it out on Amazon.

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

MarketSurge powers the charts in this video.

SPY tested the area near its rising 20-day moving average five times since the beginning of the year and it bounced to new highs every single time. This is what happens during a strong uptrend. Last week, SPY tested its 50-day moving average for the first time in a while. Will it hold here and build a new base? This would be a sign of strength. Or will it continue lower and test its year-to-date VWAP near 500. This is a very possible scenario. 

Small caps (IWM) went down the most last week. Russell 2k gapped down after the March consumer inflation report came stronger than expected. IWM is currently at a major support area near 198-200. If the correction continues, 198-200 should turn into resistance. The next area of potential support is around 194 which is the volume-weighted average price since the rally started in November. It was the place where IWM bounced earlier this year.

The tech sector and especially mega-caps continue to hold better than the rest of the market. It makes sense. CPI came above estimates but PPI (producers’ inflation) came below estimates last week. Many corporations have been able to increase their prices while their cost have increased as much which has led to better profit margins. QQQ managed to hold above its 50-day moving average. If it loses 436, it will likely test its year-to-date VWAP near 430. The good news for QQQ is that while NVDA is pulling back, other leaders are waking up. Apple, for example, had a major bounce last week after revealing a new AI chip that will be used in its 2024 product lineup. Big tech remains a safe harbor unless there’s a war with Iran. Then oil would spike even higher and even tech stocks would probably experience a 10-15% correction. Don’t let a story about strong fundamentals and bright prospects lower your guard when it comes to using stops and having an exit strategy. No stock is immune during a real market correction. Take AMD, for example. After all the hope and hype about its role in AI, its stock is already down 30% in the past month and a half while QQQ is barely down 2.5% from its all-time highs.

Remember the premise behind the market rise in the past 5-6 months – the Fed said they are likely done raising rates and will soon begin the process of cutting. This is the narrative behind the price action. So far in 2024, we had a few CPI reports that came above estimates. One time is a blip, two might be a coincidence, and three times in a row is probably a trend. Commodity prices have not been sleeping as well. Oil, gold, cocoa, copper, and coffee have been on a major run. Price action changes when perceptions change. Perceptions change when the story we tell ourselves changes. The current narrative is that the Fed has painted itself into a corner and they will have to cut to save the Treasury market in an election year. This is why most dips are getting bought and will probably continue to get bought unless the Fed, all of a sudden, changes its message and actually raises rates. Unlikely, but not impossible. In the meantime, 5-10% pullbacks are completely normal. Granted, a 10% pullback in an index might mean a 30-50% correction in a previously hot individual stock. This is why we use stops, time our market exposure, and hedge when needed.

Try my subscription service which includes a private Twitter feed with option and stock ideas, emails with concise market commentary, real-time market education, the Momentum 40 list of market leaders, and much more. See what subscribers say about my educational service.

Check out my free weekly email to get an idea of the content I share with members. How my ideas/alerts did.

I published a new trading book recently (2023). Check it out on Amazon.

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