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Big Tech Bounced Thanks To Nvidia

Exposure Status: Risk On

OVERVIEW
Not As Big Of A Rotation As It Seemed

Source: Finviz

Good morning!

Yesterday's market movements did indeed provide a twist from earlier expectations. Despite the significant profit-taking in Nvidia, which amounted to over $500B and caused a pullback in the Nasdaq, there was a notable shift in performance among different market segments. Contrary to recent trends, mega and large-cap stocks, particularly in the semiconductor and technology sectors, saw a resurgence.

It's interesting that the small and mid-cap stocks, which seemed ready to lead as they were preparing to break above their descending channels, did not ultimately fulfil those expectations. Market dynamics can often surprise us with their unpredictability, and yesterday's session clearly demonstrated that.

Nasdaq

QQQ VRVP Daily Chart

The Nasdaq swiftly regained its daily 10-EMA, although the volume accompanying this recovery was below optimal levels. Despite this, it managed to reclaim all lost ground from earlier in the week. Looking ahead, we anticipate a period of sideways movement or choppy trading in the coming sessions. This consolidation phase seems probable before QQQ potentially resumes its upward trajectory towards all-time highs..

NVDA VRVP Daily Chart

NVDA's chart resemblance to QQQ is quite notable, highlighting their closely intertwined trading patterns. Yesterday, Nvidia made a significant move by reclaiming both its daily 10 and 20 EMAs, and it found support at its point of control (POC), attracting buyers who stepped in to bolster the stock.

Currently, NVDA is showing a gap up in premarket trading. The next move hinges on Nvidia's behavior, which could potentially influence QQQ's trajectory. Typically, stocks tend to retrace intraday to close any gaps that occur at the open. Considering the significant supply level near $131 just above its current price, it wouldn't be surprising if Nvidia sees some consolidation around this level by the end of the day.

S&P Midcap 400

MDY VRVP Daily Chart

The midcaps have once again let us down, failing to break out above their descending resistance at $538. They also couldn't maintain any of their daily EMAs or hold above the POC level.

It’s becoming increasingly frustrating how weak anything outside of mega-cap tech stocks is. Today, we’re hoping MDY can stay above its ascending support line, which has been in place since early June. Ideally, it would close above its POC level. There’s still a chance for a breakout above its VCP in the next couple of weeks, but for now, the MDY has once again failed to make the move.

Russell 2000

IWM VRVP Daily Chart

The small caps continue to disappoint, showing weakness once again as they failed to break above their daily EMAs yesterday.

One notable aspect is the IWM, which seems to be at a critical juncture as it reaches the end of its VCP (Volatility Contraction Pattern). It's essentially poised to break out in one direction very soon, possibly today or tomorrow.

Yesterday's extremely low volume adds to the concerns, reflecting the ongoing weakness we've seen over the past few weeks. It's challenging to muster much optimism in this context, but we'll have to wait and see how things unfold.

There's still hope for a small-cap rally during the summer, historically a seasonally bullish period for the broader market. Let's keep an eye on developments closely.

DAILY FOCUS
Riding The Optimistic Wave

It seems the anticipated market rotation among leading capitalization groups isn't playing out as dramatically as expected. Despite this, there are still plenty of opportunities with stocks showing strength and holding their breakouts.

Granted, market conditions are choppy, and we've seen some disappointments with breakouts that didn't sustain—like Tesla's repeated failed attempts. However, this shouldn't instill fear or hesitation, especially when big tech stocks are breaking higher.

It's wise to exercise caution with small or mid-cap stocks, although there have been exceptions like Affirm or Sezzle that have demonstrated resilience and held up well amidst the volatility.

WATCHLIST
These Look Good

TSLA: Tesla, Inc

TSLA Daily Chart

  • It's interesting to consider Tesla as potentially undervalued in the AI-related stock market. Despite facing a significant drop of -40% year-to-date, Tesla has shown signs of resurgence in recent weeks.

  • We're paying close attention to Tesla's price action, particularly if we observe a breakout above the $188 descending resistance on strong volume. If this scenario unfolds, we're inclined to take a long position based on the promising technical setup.

ROOT: Root, Inc

ROOT Daily Chart

  • ROOT keeps making higher lows and is getting tighter each day below that multi week resistance level at $46.50

  • The stock managed to break above and hold it’s daily 10-EMA yesterday and if we can see a high volume break today to test its 20-EMA we are going to go long.

  • ROOT has exceptional fundamentals and is a stock that can easily run several hundreds of percent before it even touches it’s daily 10 or 20 EMAs. Don’t miss a breakout- it’s worth trying this one.

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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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