Quarter-End Markups Make Presence Known in Tone-Setting Session

The story of Tuesday is that it was the last session of the second quarter, and the action was all about positioning for the second half of the year. Market participants, who are anxious to take an extended break over the July 4 holiday, were marking up some of the names they had favored earlier this year and that are still on the books. The pattern is typical for quarter-end and it tends to amplify the strength in the largest names regardless of whether the underlying setup warrants it or not.

The Roundhill Magnificent Seven ETF (MAGS) was up for the third day in a row. The Nasdaq 100 (QQQ) gained 1.8%. Breadth was slightly negative on the day even with the indexes higher, which says the strength was concentrated in the heavyweights rather than spread across the market. The Russell 2000 (IWM) added 0.5% as small caps participated modestly. There was some good speculative action including NeoVolta (NEOV), which is up 50% in two days since I highlighted the stock on Monday morning.

Biotech Continues to Lead the Rotation

Biotechnology is still running hot and remains the rotation winner of the past two weeks. Stock-specific catalysts continue to drive moves in the group and the breadth within the sector has been broad enough to support the leadership. Abivax SA (ABVX), which I wrote about in Tuesday morning’s column, extended its gains on the favorable Phase 3 maintenance data released Monday evening. The biotech move has now extended long enough that some consolidation is reasonable to expect, but the underlying setup remains constructive for selective stock picking.

NEOV is the smaller example of what the rotation looks like at the speculative end. A micro-cap energy storage name with a credible Tesla pedigree, a Georgia manufacturing facility coming online, and fresh analyst coverage from Lake Street and Needham. The chart had been developing for months, and the catalyst combination produced the kind of move that rewards the trader who was watching before the news arrived. That is what the rotation is producing for stock pickers willing to stay focused. 

Quarter-End Cover vs Sustainable Strength

The big question after a session like this is whether the markup action is toppy or whether the strength can continue. The framework for trading the next two weeks depends on it. If the strength is genuine, the holiday-shortened week will see follow-through buying and the indexes will work higher into the start of earnings season. If the strength is quarter-end positioning that will not survive the calendar flip, the broken-name bounces fail and the rotation themes have to carry the market through the dog days of summer.

I do not see many catalysts on the horizon between now and the start of earnings season. The Iran situation is being managed through repeated pause-and-restart cycles that no longer move the market much. The Fed has spoken through Kevin Warsh’s hawkish first meeting and the next FOMC is not until late July. The May Personal Consumption Expenditures data last Thursday confirmed the hawkish trajectory. The June jobs report Thursday is the next macro test and the expectations are already quite high, which may not be good for the inflation hawks.

Earnings season is the next major event and it cuts either way. The chip suppliers have shown they can deliver. The chip buyers have to defend their margins while spending what they need to spend. The bank earnings that kick off the season will set the tone for whether the broader market can build on the index levels or whether the AI margin pressure spreads into other sectors. The next two weeks of holiday-quiet trading set up that test rather than resolving it.

Strategy

My defensive posture stays in place. Cash levels around 45%. Heavy in biotechnology with tight stops on the names that have run. NEOV is the most recent aggressive buy and the position is being managed with the same discipline as the rest. I am not chasing the Magnificent Seven bounce and have no interest in trying to time the resumption of the AI trade.

There tend to be some inflows on the first of a new month that will help the early part of next week, and the days in front of the Fourth of July are typically seasonally strong. The mechanical and seasonal factors are supportive into Thursday. Next week is when the conditions get tested and the flows reverse. 

Get ready for that. The defensive posture with select stock picking has been working through the past three weeks and the conditions over the next several sessions may extend the constructive tone before the test arrives. The right response is to keep accounts close to highs, take profits on the names that have run hard, and stay flexible for whatever next week delivers. Stock picking continues to work while the broader market chops.

Have a good evening. I’ll see you tomorrow.

At the time of publication, DePorre was long NEOV and ABVX.