Issue #25 - Artificial Intelligence Reignites $BOTZ
Trend Of The Major Indices And Market Health
A major rebound in technology this week bolstered the entire market with the S&P 500 up 1.71% for the week and breaking out of a recent trading range. The S&P 500 remains in Stage 2 rising above a rising 10-week and 30-week EMA (Exponential Moving Average). Volume continues to be lower than average which goes along with the slow nature of this recent rally to emerge and continue pushing higher. This is now the longest continuous rally since the bear market began in late 2021.
If you remember last week the S&P 500 was down and individual sectors didn't do much, but there was surprisingly strong action in stocks breaking out into Stage 2. This week saw the same thing, more Stage 2 breakouts on volume, but the indices also performed well and multiple sectors in technology were the main contributors. The breakouts higher in semiconductors, software, and artificial intelligence stocks have the potential to continue to fuel this stock market rally higher. Whenever technology is outperforming the S&P 500 it tends to coincide with a general uptrend in stocks, and that is what we are seeing here.
Breadth expanded again slightly this week so it reversed the downtrend that had been occurring over the past few weeks. The percentage of stocks in the S&P 500 above the 200 day moving average is back up to 50%. This indicator needs to move above 55% again to support a longer term uptrend in stocks. The percentage of stocks in the Nasdaq above the 200 day moving average moved up slightly as well to 33%. It has now been almost 2 years since more than 55% of stocks in the Nasdaq were in an uptrend, the last time this occurred was July 2021. This shows how devastating this bear market was as the market deteriorated for months before the bear market started, then continued to deteriorate during the bear market and stocks still haven't recovered to a large degree since. The bottom line is breadth needs to keep moving to the upside to support this rally.
In terms of other indicators the NYSE Advance-Decline line bounced where it needed to off of the 30-week EMA and remains in an uptrend. This indicator tends to remain in Stage 2 when the S&P 500 is in Stage 2 and vice versa in Stage 4. The VIX remains in Stage 4 and below a declining 10-week EMA. Overall the main indicators, like the indices, are holding up and moving in the right direction for the bulls.
Sector Review
Homebuilders (ITB) - homebuilders have consolidated now for 3 weeks in a row moving sideways in a tight trading range after a major move higher. Some individual homebuilder stocks continue to perform extremely well. Continue to watch for any real estate or homebuilding related stocks (including technology stocks tied to those industries) for follow on Stage 2 breakouts.
Artificial Intelligence (BOTZ) - artificial intelligence stocks finally came roaring back this week with the BOTZ ETF doing its largest weekly upside volume in over 2 years this week. This sector has seen a lot of mixed action since January with stocks like NVDA and SYM in strong uptrends since the sector move began, but other stocks have had sharp moves higher followed by major corrections. The weak overall market has held this sector back since January but that might be changing very quickly as the overall market is acting more supportive of individual sectors and stocks.
Semiconductors (SMH) - semiconductors had a massive move higher this week after consolidating and pulling back for the past 6 weeks. Multiple semiconductor stocks completed Stage 2 breakouts this week. Leading stocks in the sector including RMBS, NVDA, and AMD had big moves higher this week.
Software (IGV) - software stocks also had a major move higher this week after a multi-week consolidation. With software joining semiconductors in Stage 2 the technology bull market is continuing to strengthen.
Cybersecurity (HACK) - cybersecurity stocks have once again rallied back up to resistance and are on watch for breakout into Stage 2. Last week there were multiple cybersecurity stocks on the watchlist and some of them followed through this week starting to move into Stage 2. Volume however hasn't been significant in the stocks moving higher unlike artificial intelligence stocks which are showing massive volume in many cases. In general when choosing sectors to trade go with the ones showing massive volume on their Stage 2 breakouts.
U.S. Dollar (UUP) - the U.S. dollar continued to move higher for the second consecutive week and closed above the 30-week EMA. The dollar was able to rally with the S&P 500 rallying this week. As I've discussed in previous newsletters the dollar tends to perform well when U.S. stocks are leading and especially large cap technology as it is extremely U.S.-centric. A stronger dollar while U.S. stocks are rallying will be another factor that would favor technology over basic materials, especially with many commodities continuing to move into Stage 4.
Gold, Silver, And Mining Stocks (GLD, SLV, GDX, SIL) - gold and silver and the mining stocks continued to pullback this week with the U.S. dollar rallying. Silver stocks have now moved below the 30-week EMA and given back most of the gains from the previous rally. Gold should be avoided for now especially with commodities in general acting weak and the U.S. dollar rallying.
Financials (XLF, KRE) - the regional banking ETF KRE had its largest rally this week since the banking crisis began. Volume was significant as well. Nothing has changed here however though the bank ETFs need to move back above the 10 and 30-week EMA and they are still declining below those key moving averages.
Solar (TAN) - solar stocks continue to act erratic with the worst stocks in the sector continuing to breakdown. Some of the recent Stage 2 breakouts have either not followed through on volume or had sharp pullbacks immediately after the breakout. It's better to trade other sectors where the rising tide of the sector is lifting all boats (such as the homebuilders) than trying to pick the best solar stock where the sector is acting weak.
Bonds (IEF, TLT, SHY) - bonds continued to breakdown this week and TLT could fall through significant support and move into Stage 4 if it declines further. Another major downleg in bonds would impact the stock market so this sector is important to monitor for either a breakout or breakdown.
Stage 2 Breakouts
This week saw more follow through activity in Stage 2 breakouts and that is exactly what you want to see in an emerging stock market uptrend. Likely due to the regional banking crisis and the overall bear market still hanging around many stocks have had trouble following through higher from heavy overall market conditions. This could be starting to change though with some high quality breakouts on volume taking shape over the last couple weeks. Artificial intelligence in particular took heavy volume across multiple stocks this week and should be a top sector to focus on going forward. As I discussed in the last video there are already multiple established leading stocks in this sector and there are more stocks breaking out this week into Stage 2.
Semiconductors are showing sector strength again this week as well as software stocks. There were also a few automotive related stocks (MVIS and MVST) completing Stage 2 breakouts this week which could be an early sign of a new sector theme taking shape.
Best Stage 2 Breakouts
Four artificial intelligence stocks took massive volume this week breaking out of Stage 1 bases: AI, UPST, IONQ, APLD (and PLTR followed through with massive volume after its Stage 2 breakout last week). CFLT has a cluster of above average volume breaking out of its Stage 1 base. NVTS is a high volume semiconductor breakout out of a Stage 1 base. MNDY was another high volume tech stock breakout and NEWR is a continuation breakout on above average volume with minimal resistance. Finally SCPL is a communication services stock which broke out on heavy volume after earnings and has minimal overhead resistance.
The following are the best Stage 2 breakouts from the past week:
AI, UPST, IONQ, APLD, CFLT, NVTS, MNDY, NEWR, SCPL
All Stage 2 Breakouts From The Past Week
Artificial Intelligence stocks - AI, UPST*, IONQ, APLD, CFLT*, DUOL*, DT*
Semiconductor stocks - NVTS, AMAT, MRVL, MU
Tech stocks - MNDY*, NEWR*, MVIS, NOW, ESTC*, DBX*, SNPS
Cybersecurity stocks - CRWD*, CYBR*
Healthcare/Biotech stocks - SRPT, AUTL, IMMP, DNLI, IONS
Industrials stocks - MVST*, ACHR, TGI, JOBY
Consumer Cyclical stocks - GLBE*, TPR
Solar stocks - CSIQ, ARRY*
Communication Services stocks - SCPL, TTWO
Oil and Gas stocks - SD, EQT, CEQP
(Note: Stocks with a * were previously on the Watchlist and have now completed a Stage 2 breakout)
(Note: Stocks in bold broke out on 2x average weekly volume or higher for the week)
Watchlist
This is the second week in a row that multiple stocks from the watchlist completed Stage 2 breakouts. This is a positive sign as healthy markets tend to see consecutive weeks of stocks breaking out and this has been missing from this recent stock market rally.
Artificial intelligence stocks should be a main area of focus headed into the next few weeks as they are taking big volume across multiple stocks. There's still plenty of tech stocks that are setup to breakout of Stage 1 bases as well. Cybersecurity is another sector that could complete a Stage 2 breakout but we need to see better volume in this sector. Since artificial intelligence is taking more volume than other sectors it remains a better sector to focus on.
Real Estate stocks - OPEN
Artificial Intelligence stocks - CGNX, FROG, SOUN, PATH, NRDY
Tech stocks - BASE, LAZR, BRZE, TOST, SMAR, DASH, BILL, CTSH, HCP
Cybersecurity stocks - ZS
Healthcare/Biotech stocks - ANNX, BHC, STXS, ABOS, ROIV
Consumer Cyclical stocks - FTCH, VSTO
Solar stocks - SHLS, FLNC, FTCI
Communication Services stocks - Z, KIND
Chinese stocks - BIDU, TME, EH, WDH, MOMO, VIPS
Financial stocks - LMND, SLQT
3D Printing stocks - SSYS
Sector Overview - Artificial Intelligence
The sector move in artificial intelligence stocks started in January 2023 which I originally started covering in Issue #9. Since then, multiple stocks in this group are now "established leaders" as they have managed to trend higher even during a heavy overall market, much of which was caused by the regional banking crisis. A few of the established leaders are still near buy points: DUOL, ISRG, AVAV, KTOS.
The next group of stocks are "actionable" as they have recently completed Stage 2 breakouts and can be bought on pullbacks to manage risk. A number of them have taken huge volume which indicates big institutional interest in these stocks.
The watchlist stocks are in position to breakout. The extended watchlist stocks need a little bit more time to repair some technical damage and get in position to breakout.
As we monitor this sector theme moving forward take notice of how many stocks continue to move higher versus the number that are still acting weak or moving lower. As more and more stocks join the uptrend that indicates a strengthening of the sector theme which increases the odds of success. You can increase your odds of success dramatically by "fishing in the right pond" which means buying stocks in the sectors that are acting the best and have the most stocks moving higher.
The following artificial intelligence stocks are reviewed in the video:
Established Leaders: NVDA, SYM, DUOL, GOOG, MSFT, NABL, ISRG, KTOS, AVAV, HUBS
Actionable Stocks: AI, UPST, IONQ, DT, CFLT, APLD, PLTR
Watchlist Stocks: CGNX, FROG, SOUN, PATH, NRDY
Extended Watchlist Stocks: MBLY, APPN, BBAI, CGNT, CRNC, PEGA, PRCT, PRFT, PRST, U
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