OVERVIEW
Big Money Rotating Out Of Tech

U.S. stocks soared on Tuesday, with the Dow Jones and S&P 500 both hitting record highs. The Dow, which had just reached a record high on Monday for the first time in two months, jumped another 1.9%, or 743 points. The S&P 500 also climbed 0.6%, while the Nasdaq Composite managed a 0.2% gain by the end of the day, thanks to a late recovery, even though tech stocks were lagging a bit.

The Dow's boost was mostly due to UnitedHealth, which shot up 6.5% after posting better-than-expected earnings. Caterpillar and Boeing also had strong performances, each rising around 4%. In the S&P 500, banking stocks were big winners after some solid earnings reports, with Bank of America up 5.4% and State Street jumping 7.5%. However, Charles Schwab didn't fare as well, dropping 10% after releasing its results.

Interestingly, big money is rotating out of the large tech-heavy stocks and into the small and mid caps. This trend is evident as the small and mid caps are rocketing while the SPY and QQQ are selling off and distributing. Despite gains in large-cap tech stocks and hopes for a Fed rate cut as soon as September, some big-name tech stocks like Nvidia, AMD, Micron, and Broadcom fell. Microsoft, Meta Platforms, and Alphabet also ended the day lower.

On the flip side, small-cap stocks are on the rise. The Russell 2000 small-cap index gained 3.5% on Tuesday and has surged 11.5% over a five-session winning streak. Treasury yields have continued to drop, now around 4.16%, as the market is betting 100% on a rate cut by the Fed in September and further cuts after that.

Everyone's keeping a close watch on economic data and comments from Fed officials for any hints about rate cuts. Fed Chair Jerome Powell mentioned on Monday that they've made progress against inflation and that rates might start coming down even before inflation hits the 2% target. Gold prices hit a new record at $2,470 an ounce, and oil prices are sliding due to demand concerns. Meanwhile, the Republican National Convention is buzzing after Trump picked Ohio Senator J.D. Vance as his running mate for the upcoming election.

Nasdaq

The QQQ is currently trending sideways, mainly due to a sell-off in large tech stocks. Despite this volatility, it has managed to maintain its position above the daily 10 EMA, which it continues to use as a crucial support level. This sideways movement reflects investor uncertainty and hesitation to make significant moves amidst the current market dynamics.

The closing price of $496.34 suggests that, while there has been some resistance to further declines, the QQQ hasn't shown a strong rebound either. The tech-heavy nature of the QQQ makes it particularly sensitive to fluctuations in major technology stocks, which have seen some distribution recently. This pattern of selling pressure and subsequent stabilization indicates that the market is waiting for a clearer direction or catalyst before committing to a new trend.

Investor sentiment remains cautious, as the broader market narrative shifts from high-flying tech giants to small and mid-cap stocks, which have been performing strongly. The rotation of big money out of large tech stocks into these smaller sectors could signal a more significant trend change. For the QQQ to break out of its current range, we may need to see renewed confidence in the tech sector, potentially driven by upcoming earnings reports or macroeconomic developments. Until then, the daily 10 EMA will likely remain a key technical level to watch.

S&P Midcap 400

The MDY continued its breakout yesterday with a substantial gain, rising 2.47% and closing at an impressive $568.92. This move further solidifies its robust uptrend, as it remains well above all of its daily EMAs. The strong buying volume backing this rise indicates significant investor confidence and momentum in the mid-cap sector.

This bullish performance in the MDY highlights a noticeable rotation of capital into mid-cap stocks. The shift is evident as these stocks gain traction, suggesting that investors are seeking opportunities outside the large-cap tech names that have recently experienced some distribution. The MDY's ability to sustain its position above key moving averages and continue its upward trajectory points to the potential for further gains in the coming days.

Russell 2000

The small caps continued their impressive breakout with a fifth consecutive green day, posting a 3.41% gain yesterday. The IWM closed well above all of its daily EMAs, demonstrating robust bullish momentum. This strong performance is supported by substantial buying volume, indicating high investor confidence and sustained interest in small-cap stocks.

The IWM's ability to maintain its position above key moving averages, coupled with continuous strong volume, signals that the small-cap rally could have further room to run. As the broader market adjusts to this rotation, monitoring the IWM's performance will be crucial for identifying ongoing trends and potential entry points. The sustained interest in small caps reflects a broader confidence in the sector, which could drive continued gains in the near term.

DAILY FOCUS
The Market Is Shifting

We are actively looking to add exposure, particularly in small and midcap stocks that appear poised for a breakout. The current market dynamics, with big money rotating into these sectors, suggest high confidence and potential strength in any breakout attempts. This shift indicates a favorable environment for small and midcap stocks, making them attractive targets for new investments.

The increased interest and substantial buying volume in these sectors highlight the potential for robust performance. As large-cap tech stocks experience distribution, the focus on small and midcaps means that breakouts in these areas are likely to be supported by strong investor sentiment. This trend suggests that any emerging opportunities in small and midcap stocks could present significant upside potential.

WATCHLIST
Watch Out For This

GCT: GigaCloud Techology Inc

• GCT specializes in providing a global end-to-end e-commerce platform for large parcel merchandise, offering services that include logistics, fulfilment, and marketplace solutions for businesses and consumers.

• GCT has been consolidating in a volatility contraction pattern for several months, indicating decreasing price fluctuations.

• Despite trading below its daily EMAs in the last three sessions, GCT finds support at its volatility contraction pattern level.

• The tightening of this pattern suggests potential for a breakout in the coming days or weeks, prompting close monitoring for trading opportunities.

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