The rotation out of tech continued, but then it seemed to stall. Perhaps the selling ending last week that was dominated by tech and then eventually pulled down small caps was the ultimate sell-off that needed to happen. It allowed for just enough liquidation that created room for investors to buy again. But buying after that requires some positive news to give a solid backdrop for the bull.
That news can come from fundamental news, such as expectations regarding the presidential nominees or perhaps economic policy shifts with an expected victor. It can also come from company and sector-specific elements like earnings. Presidential news would impact future economic and company-specific expectations while earnings is more about a status-update on where the economy and individual companies have been recently, so the combined data and news are very helpful to fundamental analysts.
And with that fundamental analysis getting priced into the markets, the technical inputs can start to drive markets again. So, to get a sense of what’s going on, let’s review the charts for tech, small caps, and the broad market. First up, QQQ:
QQQ had a major selloff to end last week. But on a longer-term basis, it’s really just a minor pullback. In the end, the lows of the move were roughly in line with the lows of June 2024. Overall, I can’t call this a true bear market nor the start of one by any means.
IWM on the other hand:
IWM barely pulled back after the bullish breakout. IWM is looking very bullish right now and shows limited signs of slowing down, much less stopping.
Finally, SPY:
SPY is somewhere in between the pullback in tech and the mega-bullishness of small caps. Overall, it still looks good.
I’m looking for something I can buy into that has already had the fundamental inputs (aka, earnings) revealed. For me, that’s going to be UAL:
UAL pulled back aggressively with DAL earnings, then recovered heading into its own earnings. Since announcing earnings, it has been grinding higher and looks ready to hit an interesting technical inflection point. The stock is testing the 100-Day Moving Average as well as the highs from July 1st. If it can push through those levels, a move into the previous consolidation area near $53 seems reasonable as a first target. While a $4 move may sound small, it’s 8%, and leveraged with options can turn into multiples of that, so I think this certainly justifies a closer look once my signals trigger.
There are lots of setups like this on my Outlier Watch List, so make sure you check it out! With the list, I show how these technical signals can be leveraged in various underlying stocks. So, please check out my Outlier Watch List, where I give a long list of stocks I’m considering for bullish and bearish entries via options.
And as always, please go to http://optionhotline.com to review how I traditionally apply technical signals, volatility analysis, and probability analysis to my options trades. And if you have any questions, never hesitate to reach out.
Keith Harwood
Keith@optionhotline.com
Recent Comments