Small-Caps Run Hot on Mag 7 Cash
The earnings response to Mag 7 names was mediocre outside of Google, but it triggered strong rotational action.
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Earnings reports from four of the largest companies in the market triggered some very positive action on Thursday. While only Alphabet (GOOGL) had a major gain, the news triggered strong rotational action that boosted the broader market. Small-caps led to the upside with a gain of over 2.1%, and breadth was stellar with around 70% of stocks in positive territory.
This surge comes one day after historically poor breadth for a market with indexes at all-time highs. Ironically, that poor action probably boosted the response on Thursday because so many investors were unprepared for the shift.
The indexes closed at their highs, which is a reflection of not only poor positioning but a high level of FOMO. It didn't hurt matters that the money coming out of names like Meta (META) and Microsoft (MSFT) had to find a place to go.
Sticky to the Upside
The bears' response to this action is that it is excessive and unjustified and can't possibly last for long. However, as I've discussed many times in recent months, strong markets tend to stay sticky to the upside. Big moves like we had Thursday create a supply of underinvested bulls that are anxious to buy even shallow dips.
Apple Earnings
Apple's (AAPL) quarterly results are out. Q2 EPS was $2.01 versus consensus of $1.94 and revenues totaled $111.18 billion versus an expected $109.7 billion. We will have to wait for the conference call for details.
We will see how that impacts the market mood but Apple is no longer the most important stock in the market, and it isn't even very much of an AI play at this point. It is still important as a measure of consumer demand, but it is not leveraged to AI to a great degree. I don't expect Apple's earnings response to have much impact on the broader market.
My Game Plan
My game plan continues to be to stay focused on the charts and stock picking. I'm not going to be distracted by discussions about the indexes. The indexes are highly dependent on the Mag 7 names, and they are not accurately reflecting what is going on with the average stock. The average stock is much more technically attractive than any of the indexes.
Have a good evening. I'll see you Friday.
Related: How U.S. Investors Can Profit After Crazy Day for Japanese Yen
At the time of publication, Rev Shark was long GOOGL.
