As Stocks Recover, All Eyes on Google, Tesla Earnings

Following downside pressure on big-cap technology last week, the market rebounded nicely on Monday, with signs that the recent rotation and broader action would resume. Breadth was good, and other than a little weakness in energy, it was a sea of green.

The recent political drama has helped stir up increased emotions, but it isn’t having any major market impact. The main driving force right now is increased confidence that the Fed will cut rates at its meeting in September. We have signs of economic slowing, but so far they are being treated as anti-inflationary and positive rather than anti-growth and negative.

The Magnificent Seven tech stocks have lost momentum, but that is offset by the rotation and relative strength in the rest of the market. It is much healthier technical action when the indexes are bolstered by broad strength rather than very narrow mega-cap strength.

The immediate issue the market faces now is the response to earnings reports. Alphabet GOOGL and Tesla TSLA report on Tuesday night, and companies representing 29% of the S&P 500 market capitalization will report this week.

The Magnificent Seven has reacted very well to earnings over the last few quarters, but expectations are high, and it is going to take some meaningful beats to bring in a new wave of buying. Alphabet’s reaction tonight will influence the entire market.

The main issue on my mind is whether the rotational action and better relative strength in smaller stocks can continue if big-cap names falter. That would be the ideal bullish scenario, and there are indications that it is already taking place to some degree.

Good stock picking is being rewarded right now despite the uncertainty in the indexes, and that favors aggressive traders like me.

We have a mixed open developing on Tuesday.

At the time of publication, DePorre had no position in any security mentioned.