Chips, Space and Small-Caps Lead a Rotational Rally: 2 Names to Watch

Momentum continues to carry the market on Wednesday morning with strength in chips, space stocks, and small-caps, while the Magnificent Seven trades flat. Lower bond yields and softer oil prices are fueling positive sentiment across the broader market.

The S&P Equal Weight ETF (RSP) is showing relative strength against the cap-weighted SPY, which is a continuation of the rotational scenario that has been building since Friday.

Where the Strength Is

The S&P 500 and Nasdaq Composite both closed at fresh records Tuesday, with Micron Technology (MU) jumping 19% to top $1 trillion in market capitalization after UBS more than doubled its price target.

Treasury yields moved lower, helping to improve the mood after hitting multi-decade highs last week. Rate-sensitive parts of the market, like biotechnology, are finding bids.

Chips are leading the parade, with the AI trade rotating into memory names that had been laggards. Space stocks continue to ride the SpaceX IPO excitement, with Rocket Lab (RKLB), Spire Global (SPIR), Intuitive Machines (LUNR), and the Tema Space Innovators ETF (NASA) extending recent moves. Small-caps are leading the major indices for the third session in a row.

The Rotation Continues

The Magnificent Seven (MAGS) trading flat while the broader market moves higher is clear confirmation of the rotation thesis. When the largest weights in the cap-weighted indexes are not contributing but the indexes stay strong, the credit goes to improved breadth.

Within the last two weeks we have had a complete reversal in the ratio of new highs to new lows. We were close to 3 to 1 lows to highs and now that has totally reversed with 309 new highs to just 95 lows on Tuesday.

The RSP kept pace with the SPY on Tuesday and is outpacing it Wednesday morning. Keep a close eye on this relationship as it will indicate the strength of the broadening that is occurring. The average stock is attracting much more interest, and the cap-weighted indexes are no longer carried by the same five or six names.

The Iran Question

The bigger question is whether the market can keep running on hope that an Iran deal will come. President Trump said Tuesday that negotiations were in the “final stages,” and the bond market, equities, and oil are still running on that hope. The danger is that the deal gets fully discounted before it is announced, and then some.

The longer the rally runs in anticipation of a deal, the more positioning builds for a sell-the-news reaction when the deal actually arrives. The Iranian side immediately challenges any headline that suggests a deal is imminent, which keeps the uncertainty alive and gives the rally more room.

The reactive approach to the market says respect the action while it works but stay aware of upcoming catalysts. The Iran deal is the next major event that can change the picture in either direction, and there is no edge in guessing which way it resolves. The edge is in being positioned to react when it does.

Strategy

This environment favors aggressive short-term trading of strong momentum names, with the caveat that the moves are fast and require discipline on both entries and exits. Two examples that I am holding are T1 Energy (TE) and Spire Global (SPIR). Both are riding sector-specific catalysts on top of the broader rotation, T1 Energy on the AI-energy data center buildout thesis and Spire on the space IPO excitement.

Names like these can run hard and then reverse just as quickly, so strict discipline is the plan more than the conviction about fundamentals. Set the entry, plan for profit taking, set the exit on failure, and then execute the plan without emotion.

My cash level is staying high enough to keep flexibility intact, but I am actively rotating capital into names with their own setups when the price action looks attractive and sustainable.

At the time of publication, Rev Shark was long TE and SPIR.