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Money Rotating Out Of Big Tech

Exposure Status: Risk Off

Market Breadth Is Actually Improving

McClellan Oscillator (Top) Vs % of Stocks Above 5, 20 & 50-EMA (Descending)

One of the key topics we've been discussing over the past month is the narrow market breadth, with only major technology stocks like Apple and Nvidia showing significant movement.

For experienced swing traders, this shouldn't be a problem, as we are trained to "follow the money" and focus on where new highs are being made. However, yesterday was quite a telling day.

All major indices started the day very strong, but as the session progressed, there was a significant sell-off on high volume. Nvidia, for the first time since its major earnings-based episodic pivot (EP), experienced a serious sell-off down to its daily 10-EMA on very high volume. Several other breakouts in large-cap technology stocks, like Vertiv Holdings (VRT), also reversed. However, some smaller capitalization names managed to hold on. Our positions in Sezzle and Inseego Corp demonstrated relative strength during yesterday's sell-off.

What does this mean?

When analyzing various market breadth oscillators that we rely on, we're noticing improvements in overall participation rates. Despite still being in a "red" period regarding the percentage of stocks above their respective moving averages, we're clearly moving in a positive direction.

Yesterday's sell-off was particularly harsh for Nvidia holders and those heavily invested in mega-cap technology stocks. While this did impact our profit and loss (PnL), we're encouraged to see signs of improving market breadth.


QQQ VRVP Daily Chart

The Nasdaq experienced the anticipated sell-off we discussed, clearly visible in the volume profile on the y-axis, showing a significant volume cluster above $482 as sellers liquidated their positions.

Interestingly, this downturn was short-lived, with buyers swiftly stepping in to defend the $480 level, as indicated by the overwhelmingly blue demand zone (indicating strong buying aggression).

For today’s session, we're exercising patience and opting to remain on the sidelines to observe the market's direction. Major tech stocks like Nvidia, despite their significant red day yesterday, are unlikely to experience a crash, and dips towards their 10-EMA should be viewed as normal action rather than causes for concern. The same applies to the Nasdaq as a whole.

Don’t panic until you actually get a reason to panic. A stock or index that is trading above it’s daily 10-EMA is still in a major uptrend.

S&P Midcap 400

MDY VRVP Daily Chart

The midcaps managed to just barely claw themselves above their point of control (POC) at $535 but once again got rejected at their daily 10, 20, and 50-EMA levels when MDY tried to push above them yesterday.

This theme of rejection in the midcaps really needs to stop. In all honesty, we're seeing a slowdown in the decline of the past month when you look at the volume and the rate of decline, which has shown a turning point in the last three sessions.

Ideally, we'll see some relative strength in the midcaps today and the POC at $535 will act as a demand zone. If that holds, it could set up a move higher next week, especially if we finally break above those falling daily EMAs.

Russell 2000

IWM VRVP Daily Chart

The small caps had a more volatile rejection against their falling daily EMAs yesterday, but they managed to end the day with a doji candle, which isn't a terrible sign (doji candles indicate indecision).

It's important not to overanalyze. Ultimately, the key thing here is whether or not the IWM (Russell 2000 ETF) can finally break out of this descending channel once and for all.

The overall improvements in breadth should benefit the small caps. If our theory about money shifting out of big tech and into other sectors holds true, we anticipate seeing relative strength in the IWM and a potential resurgence in small caps heading into next week.

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Watch For Relative Strength

The market seems to be at a potential turning point right now, possibly indicating a sector rotation as larger funds begin buying into smaller, more speculative industries and stocks. This shift comes as inflation data shows cooler-than-expected numbers and the pressure on equities eases.

However, it's also plausible that yesterday's movements could signal the start of a deeper market pullback instead. If that's the case, we might see further declines today and next week could be challenging for PnLs.

Given these uncertainties, we've decided to sit on the sidelines today. We'll observe which stocks and sectors outperform or underperform, monitor how Nvidia holders respond to yesterday's downturn, and assess whether there's additional weakness in small and midcap stocks compared to the tech-heavy Nasdaq index.


We're skipping the watchlist update in today’s report because we're not actively monitoring any stocks. The market is undergoing a rotation and we currently hold positions in several stocks that are performing well. However, yesterday’s sell-off prompted us to exit positions in some, including Carvana and Coinbase Global.

We want to avoid any confusion by suggesting stocks to watch or implying they are buys at this moment.

Stay safe out there today, folks! ✌️

Nothing To Declare

2 Chainz Pockets GIF by MOST EXPENSIVEST

This newsletter does not provide financial advice. It is intended solely for educational purposes and does not constitute investment advice or a recommendation to trade assets or make financial decisions. Please exercise caution and conduct your own research.

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