July 21 Market Report, Analysis and Commentary

Hello readers,

The much-anticipated slowdown in the Tech sector (primarily Semiconductors) was in full swing last week as AI- powered rally fizzled and investors started deciding that it is time to make some profits and move on to other areas of market. Semiconductors as a group were already struggling and signs of slowdown (or a possible correction) were emerging which picked up momentum this week causing S&P 500 and Nasdaq to record negative performances after a bullish run for several weeks (see the performance table below).

Market rotation was in full effect last week, causing the small caps Russell 2000 to reach its highest levels in the last two years. Market breadth improved as money flowed into more interest-rate sensitive areas of the market amid sooner than expected interest rates cut by the Federal Reserve and mild inflation reports. Overall, the financial and energy sectors along with the Real Estate and Staples sectors were very strong while the Tech heavy Nasdaq 100 lost 3.96% during the week. Nasdaq was first battered with Trump's comments on Taiwan which caused a drop in semiconductor stocks like ASML and TSM and then it was mauled due to a breakdown in Cyber security systems powered by CrowdStrike which caused systems outage across the world causing disruptions in airlines, financial services, and other areas.

The weekly and Yead-to-date market performance of major Indices is summarized as follows:

Index Weekly Performance YTD

S&P 500: -1.97% +15.41%

Dow Jones: +0.72% +6.89%

Nasdaq Comp: -3.65% +26.32%

Russell 2000: +1.74% +8.04%

The selloff in the Tech sector might simply be the phenomenon that when one group of stocks gets too extended, expensive, and crowded - they drop. It does not mean that all stocks will come down, rather it could also create opportunities to accumulate long-term stocks on discounted values while the market is focused on other groups which were ignored earlier on. For example, Nvidia, Apple and Microsoft remain on our list of long-term picks (see further details below).

Meanwhile, it is also time to focus on other groups which were slow to pick-up or have been laggards in recent past. Stock Market rally is still intact, and a broad rebound could be triggered amid changing political landscape (like a potential Trump win) and strong earnings reported by companies such as Google, Abbvie, Chevron and/or others.

Important Events next week:

Tuesday: Existing Home Sales

Wednesday: Manufacturing PMI report, New Home Sales, Crude Oil Inventories

Thursday: GDP, Durable Goods Orders, Initial Jobless Claims

Friday: CPI Core Price Index, Consumer Sentiment report

Important Earnings this week:

Visa, Tesla, General Motors, PulteGroup, GE, GOOGL, Ford, Abbvie and Honeywell (HON) are reporting second-quarter earnings this week.

Actionable Stocks:

Long-Term View: These stocks were mentioned for the long-term holdings in our recent commentaries:

MSFT:

After showing strong months for months, Microsoft finally took a breather and came down on Friday in the wake of CrowdStrike system failure which affected Microsoft systems around the world. It is currently testing its 50-Days moving average and being a long-term holding is expected to hold its recent gains.

NVDA:

As mentioned in our last several commentaries, Nvidia was due for a retreat as the entire Semiconductor group took a breather. Nevertheless, with the recent investor frenzy behind this stock, it is expected to find support at its current level of 50-day EMA line. However, it is not expected to return the extraordinary returns recorded in last 1.5 year. Remains a favorite as a long-term holding.

AAPL:

Apple also retreated amid expected Nasdaq reversal; however, it is expected to find support around 209 and 200 levels. Remain our favorite as a long-term pick.

AMD:

AMD broke out and went as high as 187 but retreated quickly along with the semiconductor and Tech groups triggering a sell signal. It is expected to further consolidate around 140 levels. It remains on our radar, being a potential long-term pick. Till then, let us keep it on our watchlist for a possible base formation and a buy point.

Medium- and Short-Term Picks:

For these stocks we suggest that profits should be taken at 15-20% levels from the buying price or at least 25-50% of the position should be taken off the table to ensure profitable trades. For the rest of the holdings, further assessment will be required at that time to assess future potential.

NVO:

Sell signal generated as it breached to 50 days EMA line. Let us wait for another base to form.

GOOGL:

Google is testing its 50 days line. It is continuing to be a favorable stock in the medium term (6 months - 1 year). If it breaks this line and does not come back above it, then it will be a time to quit the position at least for the time being.

AMZN:

Amazon retreated and could not pass the 200 mark. It is tricky to hold its current level (183.13). Earnings are due next week but Amazon has been a strong leader in the past and has historically good performance from October - December period.

Interesting New Stocks for Watchlist:

APPF:

APPF is currently in an actionable range, however, its earnings are scheduled next week and hence a more conservative strategy could be to wait for the earnings release. Meanwhile, keep it on your watchlist as it has been showing strong action recently.

TOST:

Toast Inc. builds software which helps restaurants manage online orders and dine-in order, operate an on-demand delivery network, and integrate payments. It is currently in the actionable range starting from the buy point of 26.29. August, being historically a good month, could also provide tail wind to move stock higher in a short period of time.

COIN:

A beneficiary of the recent Bitcoin/Cryptocurrency rally, COIN closely follows the Bitcoin path and is likely to ascend soon (although September is traditionally a weak month for the stock). However, it is volatile and a 10%+ wider Stop Loss (suggested at 230,20) should be given to accommodate the larger swings in the Bitcoin related stocks.

PLTR:

Palantir Technologies as mentioned in the last commentary is still hovering around the 27.50 level and is currently actionable with a green TR signal on both daily and weekly charts. It can quickly generate a 10-15% profit although Aug and September are historically not very good months for this stock.

PGR:

If interested in insurance stocks, then Progressive Insurance (PGR) has been performing very well during recent weeks and is actionable at current levels with a quick 10-15% profit target.

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