Pause or pullback?
After 6 weeks of going straight up we finally had our first pause. The big questions for me this week are:
- 01Do we see the leaders of this cycle Semiconductors digest or pull back deeper?
- 02Does money rotate into more growth, or energy?
Last week we saw Space, Software & Neoclouds acting well and seeing rotation. This is good as rotation stays within growth. A bull market needs to be led by HIGH GROWTH GROUPS. Towards the end of the week we saw macro concerns and rotation into Energy while growth in general gapped lower and closed near lows of day.
I really tune most out and just watch the charts. If rotation into energy continues this week then we likely see the deeper pullback in semis and tech vs just a digestion.
Either scenario I can't be too negative. Maybe I get stopped out of some positions like MU and others, but the thing that has me the most optimistic is we have had many big volume gap ups in Software on great earnings. When you see a growth group have big earnings moves it usually is a good indication that group is going to keep seeing money go in.
Lets look at the weekly charts of these groups
Semis have been by far the strongest group the past 6 weeks. This is the best group to lead. Price action last week finally cooled off after being very extended... now watching to see do we trade tight and let MA's catch up, or do we pull back deeper to an MA.
Either way this is the group to watch for either scenario as many of the leaders that went up too much will begin to offer really good secondary entry points.
Rotation into software continues. This was a group that was beaten down a lot. Normally when you have a beaten down group start to lead its not good... but with tons of stocks in the group gapping up on good earnings and following through it changes the picture.
The group faded end of last week when growth came under pressure but the overall action in leading names RKLB LUNR FLY remains constructive.
This chart of the neocloud group looks similar to the actual charts of IREN CIFR. The group looks strong and the leader of the group NBIS is currently one of the strongest in the market.
Rotation into solar and energy in general last week. Good news continued rotation here would be more stocks to trade. Bad news is just rather not have energy lead.
Theres been a lot of discussion on bad breadth the past week. I discussed it too. When you see it especially when extended, its likely we do see some weakness come. But I wanted to share this post by Walter on the A/D during the dot com bubble.
Its 1 data point, don't focus too much on it. Just watch the charts. Feels similar to everybody not buying the rally because of low volume.