OVERVIEW
The AI Frenzy

After a dynamic day of trading last Friday, major technology stocks have regained their momentum.

The stock market witnessed its most successful week in 2024 following reassurances from Microsoft Corp. and Alphabet Inc. regarding the payoff from their investments in artificial intelligence and cloud computing. This provided a sense of relief for investors who had been uncertain about whether the primary drivers of the bull market could meet the lofty expectations set for the industry.

Jim Awad, senior managing director at Clearstead Advisors, praised the remarkable performance of these tech giants, emphasising that their strong financial results were crucial for the broader market to maintain its upward trajectory and for this recent pullback to be short lived.

Despite the uptick in interest rates and stickier than expected inflation, we maintain optimism about the medium to long-term outlook for the stock market, given the robust performance of the handful of key stocks bolstering the equities markets. The Nasdaq, as a capitalisation weighted index, assigns greater influence to its components based on their market capitalisation, although adjustments may be made. Strategists at Bank of America Corp., led by Michael Hartnett, suggest that the US equity market will remain swayed by these chosen large-cap stocks (namely Microsoft & Alphabet) until substantial shifts occur in underlying monetary policy.

Microsoft surged by 2.3%, and Alphabet soared by as much as 12%, marking its largest single-day percentage gain since 2015 and propelling its valuation above the unprecedented $2 trillion mark. These increases position both companies to continue their outperformance year-to-date, driven by optimism surrounding artificial intelligence (AI). In contrast to the Nasdaq 100 Index's 4.7% rise, Microsoft has experienced an 8.6% increase, while Alphabet has surged by an impressive 24%.

This concentration on specific stocks is expected to persist until real 10-year yields, reflecting actual borrowing costs, come down to approximately 3% (currently 4.7%) , or until there's a combination of higher yields and broader credit spreads that could signal a risk of recession.

When Treasury yields rise, it means that the return on investment in safer government bonds increases. This can have several effects on the broader financial landscape. One significant impact is on investor behavior: as Treasury yields become more attractive, investors may shift their capital away from riskier assets like stocks and towards safer assets like bonds. This shift in investment preferences can lead to a decrease in demand for stocks and other risky assets, thereby putting downward pressure on their prices.

Technical Analysis

The QQQ broke above its daily 10-EMA on Friday, driven primarily by positive mega-cap earnings discussed earlier. However, it encountered notable resistance at the $433 level, precisely aligning with the descending daily 20 and 50 EMAs.

Interestingly, Friday's trading volume was the lowest observed all month, which has left our analysts with mixed signals. The decrease in volume could be attributed to passive selling pressure and buyers remaining cautious about trusting any market rebound.

Today's market behavior is under close observation. If the QQQ manages to push and maintain above $435, it would signal a high probability that the pullback is nearing its end and give us the green light to test several long positions. However, given the low volume and tepid buying activity, there's a chance that this bullish sentiment may be short-lived, leading to a deeper market correction.

Analyzing the Visible Range Volume Profile (VRVP) on the Nasdaq, we observe substantial volume clusters both above and below the current price levels. The QQQ's Point of Control (POC), representing the area with the highest volume traded and often acting as a magnet, currently resides +1.73% above the present price.

There is notable support at immediate levels below, serving as a potential cushion to propel the QQQ towards its POC and surpass all key daily moving averages.

Should this scenario unfold, it would likely mark the conclusion of the one-month pullback. Concurrently, several stocks poised with current bases are anticipated to break out to higher levels and sustain an upward trajectory.

S&P Midcap 400

The MDY tracks the performance of companies falling within the mid-range of market capitalisation, typically ranging between $3 and $13 billion. Currently, there's a notable high tight flag formation visible on the daily timeframe, characterised by distinct resistance around the descending level of $532 that has persisted for several weeks. The contracting volume indicates a potential for a significant move in either direction in the short term.

The Visible Range Volume Profile (VRVP) chart for the MDY suggests that midcaps are at a crucial juncture. The Point of Control (POC), which reflects the price level with the highest trading volume, coincides with the current share price. Additionally, there are noticeable gaps in volume both above and below the current price.

This situation neither leans towards a bullish nor bearish signal. The alignment of the POC with the current price suggests a potential balance between buyers and sellers at this level. However, the volume gaps indicate a lack of significant conviction from either side, leaving the market direction uncertain. It signifies a period of indecision and could potentially precede a breakout or breakdown, depending on how the market participants choose to process these recent levels.

Russell 2000

The Russell 2000 index has retraced all its gains accumulated since the beginning of 2024, with its year-to-date performance now standing at a decline of -0.52%. Currently the small caps are positioned below the declining daily 20 & 50 EMAs. Volatility is beginning to contract which coincides with the reduction in volume and a tightening in price action.

The Visible Range Volume Profile (VRVP) for the Russell 2000 closely resembles that of the Nasdaq. The Point of Control (POC) sits approximately $10 above the current share price, accompanied by vacant volume pockets both above and below.

This scenario doesn't lean decisively towards bullishness or bearishness. The alignment of the POC significantly above the current price level suggests potential interest from buyers at higher prices, while the empty volume pockets indicate a lack of substantial trading activity in the near vicinity of the current price.

It's noteworthy that the IWM is likely to mirror the price action of the QQQ in the immediate term.

SECTOR ANALYSIS
Defence Staying Ahead

The recent performance of various sectors provides insights into the prevailing market climate. Defensive sectors like utilities and consumer staples have shown positive gains, indicating a preference for stability and safety among investors amidst market uncertainties. Conversely, cyclical defensive sectors such as energy, financials, and industrials have experienced mixed results, with some sectors posting gains while others have declined. This suggests a nuanced outlook on economic recovery and growth prospects, with concerns about inflation, supply chain disruptions, and interest rate movements influencing sector-specific trends. Additionally, the decline in technology and real estate sectors reflects profit-taking and potential market rotation away from high-growth sectors, signalling a shift in investor sentiment towards more defensive positioning.

Overall, the market climate appears cautious and uncertain, with investors balancing optimism about economic recovery against concerns about inflationary pressures.

In the immediate term, our attention is centred on monitoring the behavior of our high relative strength watchlist. It's important to note that this sector analysis, which evaluates recent 1-month performance, is not intended to provide day-to-day insights into the market's future health. Rather, it serves as a medium-term outlook, helping to identify trends and patterns in sector performance over this timeframe.

This analysis aids in strategic decision-making and portfolio management by providing insights into which sectors have exhibited strength or weakness over the last month. By understanding the recent behavior of the market in this medium-term timeframe, traders can better assess where capital may be flowing, which sectors are showing resilience or weakness, and where adjustments to portfolio allocations may be warranted.

Moreover, traders can utilize this data to identify shifts in market behavior. For instance, significant breakouts in growth sectors that have been previously underperforming over the last month could signal a change in trend and momentum.

DAILY FOCUS
A Decisive Moment

Our primary focus in today’s session revolves around the broad market’s response to the recent low-volume rally. Our exposure status has transitioned to moderate risk. If significant breakouts occur in our relative strength watchlist, we will cautiously begin to initiate small long positions to seize potential gains from this upward movement.

We won’t be rushing into positions; instead, we'll ride the momentum and await solid confirmation from market leaders breaking out before executing any trades.

MSTR: MicroStrategy Incorporated

• MicroStrategy (MSTR) is a leading Bitcoin development company, publicly traded and committed to advancing the Bitcoin network through financial activities, advocacy, and technology innovation.

• MSTR was one of the leading names in the previous bull cycle, doubling its share price in a matter of months. We note a significant volatility contraction with volume decreasing and the stock making a series of higher lows.

• The company's earnings are scheduled for today, and we'll closely watch how MSTR behaves. If the stock gaps up on high volume with positive results, we'll consider initiating a position.

SEZL: Sezzle Inc

• Sezzle, a fintech firm, provides customers with the convenience of 'buy now, pay later,' a service akin to Klarna's offerings.

• The stock has surged over 300%, consistently maintaining above its daily 20-EMA without any weak closes, coupled with impressive revenue growth.

• We'll be closely observing the stock's behavior amidst its current volatility contraction and upcoming earnings report (8th May 2024).

GCT: GigaCloud Technology Inc

• GigaCloud Technology has maintained a pattern of higher lows amid a months-long volatility contraction. GCT stands out as one of the few growth stocks during the recent pullback, consistently tracking above its key exponential moving averages.

• With the earnings report for GCT scheduled for late May, there are no imminent news catalysts that could introduce unpredictable surprises to the market.

• Should GCT breach its descending resistance level on notable volume, we will consider initiating a position.