Market Catches AI Skeptics by Surprise

Following a mixed response to Mag 7 earnings reports, the market regrouped and caught skeptics by surprise Monday. The rally was broad, strongest in the areas that had been choppiest, with AI and technology names leading. The Dow closed at a record, the Nasdaq gained 2.1%, and advancers beat decliners better than two to one.

There is some follow-through action with the chips extending their gains, and Palantir (PLTR) driving AI interest after a good report.

IBD Increases Market Exposure, But Confirmation Still Needed

Investor’s Business Daily raised its recommended market exposure to 20% to 40% from 0% to 20%. I wrote about their system here last week when it was sitting at its lowest possible reading while the Dow was rallying, and the point then was that the model cannot raise exposure without specific evidence. It has now gotten some evidence that justifies a higher exposure level but further confirmation is required.

What it still needs is a technical follow-through day. That requires a strong move on volume that is heavier than the prior session. That will confirm a rally attempt and shift the reading to a new uptrend. Monday did not qualify because volume was lighter than Friday. IBD says the follow-through could come as early as Tuesday.

An increase from the lowest possible exposure is the timing system acknowledging that a rally attempt is underway, but caution is still needed because the trend has not yet changed.

Palantir Is the Interesting Tell

Palantir reported after the close on Monday with earnings of $0.41 against a $0.34 estimate on sales of $1.9 billion against $1.8 billion expected. The stock is jumping more than 15% Tuesday morning.

Palantir is still an expensive name with a forward P/E of 79 but it has EPS growth of 105% in 2026 and is expecting another 44% jump in 2027, which isn’t nearly as crazy as it looked when the stock was testing the $200 level back in December 2025 and attracting shorts.

Palantir was one of the leaders during the AI surge, and a leader from the last advance reclaiming its footing deserves attention. Broken leaders usually take months to repair. When one of them gaps higher on its own news and holds, it tells you the buyers who abandoned the group are willing to come back for the right reason.

SpaceX (SPCX) reports after the close Tuesday, its first quarter as a public company. It has been on the new-low list repeatedly over the past few weeks and rose 6% Monday after touching another low. There are some large “unlocks” of shares about to hit as well. The reaction will tell us something about whether the speculative appetite for the newer AI-adjacent names is genuinely returning.

I am not going to be quick to trust the view that AI has overcome its problems. Nothing about the capital spending question is resolved, the semiconductor pricing issue is still open, and the financing cost problem has not gone anywhere. However, there is technical action here that demands respect, and refusing to acknowledge it because the fundamental worries are still unanswered is a mistake.

The Support Is Already Eroding

One caution about what actually produced Monday’s move. The rally was triggered by falling oil and falling yields, with crude down 5% to $80 and the 10-year Treasury yield off six basis points to 4.68% after President Trump halted the attacks on Iran and talks began.

Both of those are reversing Tuesday morning. Brent is up nearly 2.5% and the 10-year is back to 4.71%. The 20+ Treasury Bond Fund (TLT) is hovering at its lowest point in a year. That is a headwind that can not be ignored. Also Iran and the administration are sending conflicting messages again, which is beyond tiresome at this point.

The market is holding its gains anyway, which is either a sign of underlying strength or a sign that traders have not yet noticed that some of the big issues are still lurking. We will know more by the close.

Game Plan

I have dozens of small-cap names with earnings about to hit and that is where my attention is. The reports start arriving in volume this week and they will produce the same volatility and dispersion we watched in the mega-caps, with bigger moves and mispricings that last longer.

My approach has not changed. I am watching for opportunities to make some moves rather than making them in advance of the news. The stocks that showed relative strength through the past two weeks of pressure are the ones on my list, and the ones that report well from that group are where the entries will be.

At the time of publication, Rev Shark had no positions in any securities mentioned.