7/18 Recap What Is Going On?

I have alot to say today. The rotation continues to unfold with big tech being sold and small caps being bought. The IWM is green and the QQQ is red. This is over a week now of this action and not a single one of you should be surprised by this I’ve been discussing it daily in these recaps for the entire past week. It’s funny because stocks go straight up for pretty much a year and everyone thinks that is normal then they dip for 5 days and investors want an answer why.

The reality is simple, look at the chart below, 6 days ago, the QQQ, below, broke below the 8 ema and closed there, that was your sign that the short term trend was broken. From there, the next 3 sessions it formed a bear flag, I discussed what that was yesterday in the recap, and it broken down below the 21 ema. That is my barometer of a medium term trend, that means that the big tech market is broken, until it reclaims the 21 ema, which is why I said again yesterday do not waste time with big tech. Today we gapped up and faded the whole move, as you will see below, we keep rejecting the underside of the 21 ema. Now the next support level is that 50 day down at 470 on the QQQ. The computers that run the market are programmed to buy and sell at these same levels we discuss here, that is as simple an explanation as I can give.

Again, there are other sectors in this market besides megacap tech. Of course those are the best companies in the world and they will be fine, but they were incredibly overweighted by everyone for so long. They are now shaking the tree a little as they move into other things, for now they are buying energy, small caps, banks, etc. Money is simply shifting out of big tech for the moment. They’re calling it the Trump trade, I don’t even think its that because nobody wins more than big tech if Trump wins and lowers tax rates. I think it is simply just a crowded trade unwinding and buying unloved sectors because big tech has mostly had its entire mean reversion trade. The names have come off the 2022 lows and are almost all trading at normal valuations now, except Amazon, that one is silly cheap relatively. MSFT and NVDA are trading at insane FCF premiums to Amazon for instance based on say 2026 FCF. From here these tech names will go up inline with what their cash flows grow. The big surprises are mostly done.

We’ve seen this here multiple times, if you remember I called the breakdown in April to the day with that afterhours post here and now again, this stuff isn’t that hard to see, you just look at the moving averages and when you lose a key one, you don’t fight it. Yesterday when I mentioned people using covered calls I got a ton of questions about it. Look there is no rule to using covered calls, sell them where you’re ok being called away, simple as that, but if you know the market will be weak, and charts are telling us that, you sell short term calls 2-6 weeks out and profit where you can. Will these megacaps be higher in 6 months? More than likely.

Speaking of Amazon, let’s look at its chart, below.

Clear as day, you can see 6 sessions back the break of the 8 ema. That was your sign, if short term mattered to you, get out. I have stated many times, it doesn’t to me as I seek a long term capital gain which is at least until January. You will notice just like the QQQ it formed a bear flag and broke down. Today it flirted with the 100 day, the white line, and it hasn’t done that since October 2023. Amazon had record Prime Day sales, up 15% year over year, that doesn’t matter, they’ve been selling this thing for days. Will it be $220+ by year end? Probably, but if you’re trading it short term, all that matters is how it is trading day to day and the chart has been telling you for days, SELL SELL SELL. So you have to decide are you a short term trader or are you a longer term trader.

If you’re a longer term trader, then stop having panic attacks over every 15 minute candle. It makes me laugh reading the dm’s and emails from people who have been holding something like Amazon since last May where its up 60% since and they’re worried that it’s down the last 8 days. You can sell it whenever, why didn’t you sell when the 8 ema broke? You had your warning sign.You’re up alot, no need to hold something that gives you that much anxiety and honestly if it does give you anxiety, you have way too much. Me, I make longer term bets and I know periods of weakness happen, you can’t do much other than sell short calls vs your positions and harvest profits when charts break. My calls expire in June 2026 and they’re still up alot, you wan’t me to panic sell it in July 2024 because the market is in a small tech rough patch? Just understand markets go in both directions, you can’t cheer every move up and scratch your head when markets move down. As long as you’re not in junk, you will be fine in time, we do have like 200 years of data backing this train of thought.

Just listen to the charts, they don’t lie to you, they’re the only real truth in markets. They always tell you when you should be lightening up, if you don’t listen, and markets dip to where you’re stressed, you have nobody to blame but yourself.

Recent Trades

IMAX - In yesterday’s recap I mentioned how odd it was to see $400k of calls on IMAX, that isn’t really a name that is hot with traders, today it is up 4% and those December $21 calls are up 30% a day later. That’s a quick move on IMAX, it looks great actually but I’d cash those in right now just because I think IMAX is junk. It could run more, but I wouldn’t cry over booking a 30% gain in 24 hours on it.

Trends

What do you notice in the 1 week bullish trends? Only 2 of the big 6 tech names, Apple and Nvidia. The others have completely fallen out of favor with call buyers and put sellers short term. That’s usually how this goes, meanwhile the IWM is up near the top and that has been the best thing out there.

1 Week

2 Week