Hot Money Rotates to Keep the Market Running
Rolling updates on negotiations with Iran seem to have lost their meaning.
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It was another good day for the major indices as they pushed at new high levels. There are still pockets of strong momentum, with stocks like Marvell Technology (MRVL), Lumentum Holdings (LITE) and Applied Materials (AMAT) leading the charge.
The common feature among the strongest names is that they are leveraged to the strongest growth areas within AI. Some of these are infrastructure plays and some are beneficiaries of the shift to AI in the PC sector. Money rotated out of Microsoft (MSFT), Amazon (AMZN), and Alphabet (GOOGL) and into Apple (AAPL) and semiconductors, where the VanEck Semiconductor ETF (SMH) caught a massive gain of nearly 4%.
Biotech Gets Ugly
One group that was particularly ugly on Tuesday was the biotechnology sector. Three large blowups at Abivax (ABVX), Celcuity (CELC) and Praxis Precision Medicines (PRAX) created a wave of sympathetic selling in the sector and sent the iShares Biotechnology ETF (IBB) down 2.7%. There are plenty of innocent victims in the group but who wants to buy a biotechnology stock when you have crazy momentum in optical computing and other technology sectors?
Iran Talks Lose Their Meaning
There was more talk from the Trump administration about progress toward a deal with Iran but we have been hearing that for so long it has lost its meaning. The optimistic comments still trigger some buying, but when the deal doesn’t happen there is no pullback. Oil was higher but it didn’t have any impact on the market.
Breadth and the 200-Day Split
Once again breadth was mediocre with just 47% of stocks in positive territory at the close, however the Invesco S&P 500 Equal Weight ETF (RSP) managed to break out and small caps stood out with a 0.9% gain. Despite the indices being extended and hovering at all-time highs, there is a 50/50 split between stocks over and under the 200-day simple moving average. If a stock isn’t over its 200-day simple moving average it is fair to say that it’s probably in a bear market. It is highly unusual that so many stocks are not participating but some of these names have been benefiting from rotation action, which is a positive sign.
Chasing Momentum Is the Trap
One of the toughest things about this market is that the hot sectors are shifting fast, and when something like Dell Technologies (DELL) gets hot, it is difficult to find entry points unless you are comfortable buying super momentum. Many traders are emboldened by recent success and are still having good luck with some of the momentum chasing. My personal experience is that whenever I start to feel like throwing in the towel on my discipline and buying a chart that I normally wouldn’t buy, it’s a bad idea.
I felt a bit left out on Tuesday and took some hits in biotech but I feel good about the fundamentals of what I’m holding. That doesn’t mean they are going to go up but it gives me some room to work as I position for second quarter earnings.
Have a good evening. I’ll see you tomorrow.
At the time of publication, DePorre was long ABVX and GOOGL.
