Momentum Monday – Lot's Of All-Time Highs From Financials to Facebook/Meta and AI Still Roaring

Last week brought another choppy tape filled with quick shakeouts and morning gaps fading. Under the volatile surface and spikes in VIX and crude oil, we continue to see a strong bid and uptrends that remain intact.

The most curious development in the past two weeks has been the rise in rates. Yes, after the Fed cut the overnight rate by 50bps and signaled the beginning of a rate-cut cycle, the market turned around and chased yields higher. It could be the typical “buy the rumor, sell the news” action or something deeper and more significant. The economy is still strong and the job market is growing. The Fed is not in a rush. They will probably cut a couple times 25bps each for the rest of the year and the market might have expected more than that. I mention the action in rates because I believe they have a big impact on what groups are leading in the market. I don’t want to be chasing strength in small caps, solar, biotech, and regional banks while rates are rallying. I would rather be long big Tech and semis with such a backdrop. If rates begin to decline, I will position heavier in biotech, housing, solar, etc., and be lighter in big tech. I might be wrong. This is how I view the market right now. 

The new venture round for Open AI and Nvidia’s CEO appearance on TV lit a fire behind the AI sector. We saw resilience in semis. AMD broke out. NVDA and ARM are setting up for a potential breakout. Energy AI stocks have been on strong run – CEG, VST, etc. AI-related stocks have been the undisputed leaders since January 2023. It all began with NVDA and SMCI but the theme was expanded into many other names and industries. It remains the biggest market theme.

In the meantime, China followed through. It’s hard to chase and keep those stocks overnight as they have big 5-10% gaps almost daily. Unless you trade them intraday or via options, which allows you to limit the gap risk, you will probably be better served waiting for some form of a range contraction or a pullback to get involved. This is exactly what I thought last weekend and guess what – most of them just kept going higher through overnight gaps. The brokerages TIGR and FUTU doubled in one week. Crazy price action.