July 7 Market Report, Analysis and Commentary

Hello readers,

The main headline during the shortened trading week (due to July 4 holiday) was "The Nonfarm payroll" report which was better than expected (206,000 vs 200,000 forecast). Last month May figures were also revised downwards to 218,000 from 272,000. This signaled that the US economy seems to be cooling off a bit and the "inflation pressures were easing" thus increasing the odds that Fed will likely cut the interest rates as early as in September. Fed minutes from the two-day meeting on June 11-12 will also be closely monitored by investors and traders. The markets responded to these expectations positively and both Nasdaq and S&P 500 hit all-time highs several times during the week. In fact, Nasdaq advanced 10th time in the past 11 weeks while S&P 500 is up 9 out of the last 11 weeks.

As expected earlier, Semiconductors (mainly Nvidia) continued to somewhat struggle but market leadership was in other sectors like Autos where Tesla rebounded 42% since early June. Tesla has a consistent behavior of rising before its earnings (due 7/23) most of the time and it continued to show this pattern recently as well.

Back to market performance which is summarized as follows:

Index Weekly Performance YTD

S&P 500: +1.95% 16.72%

Dow Jones Industrial: +0.66% +4.47%

Nasdaq Composite: +3.5% +22.26%

Russell 2000: -1.08% +1.02%

Once again, small caps (Russell 2000) struggled and lagged all major markets including the Tech heavy Nasdaq 100 which has gained 18.13% on YTD basis and increased by 6% in June. Also, if we subtract the performance of the Magnificent Seven stocks, i.e., Alphabet (Google), Amazon, Apple, Meta (Facebook), Microsoft, Nvidia and Telsa, the S&P 500's year-to-date return reduces from 16.72% to 6.28% only. This shows that the Magnificent Seven are propelling the market rally so far. In fact, these seven tech stocks account for roughly two-thirds of the S&P 500 increase in market value this year.

Therefore, the current market situation requires investors to be nimble and focused on the selection process, since any temporary profit taking or consolidation in these seven stocks will cause the entire market to start correcting itself if the other sectors do not come forward. Other promising areas so far are Software, Financials, Autos, Discretionary sector (XLY) where investors might focus. As an example, the software group (DJUSSW) rose by 3.74% while Autos (DJUSAU) increased by 22.47% last week. Miners were other notable performers as the Mining and Gold Mining groups increased roughly by 7.5% last week. Copper stocks and future also spiked during the last week.

Important Events next week:

Tuesday: Fed Chair Powell speaks.

Wednesday: Powell testifies, Crude Oil Inventories

Thursday: CPI Report, Initial Jobless claims.

Friday: Producer Price Index, Michigan Consumer Sentiment

Important Earnings this week:

Big banks JPMorgan Chase, Wells Fargo and Citigroup's (C) report second-quarter earnings

Actionable Stocks:

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

MSFT:

Microsoft rose to new highs as mentioned in our last few commentaries. Once again, a long-term buy on our list. However, a quick reversal to the 50-day EMA around 433 will provide an alternate entry.

NVDA:

See our notes above for semiconductors. We still believe that Nvidia will consolidate further but investors are relentless and are not letting the hot stock cool down. Nevertheless, it seems extended and due for a consolidation.

AAPL:

Apple also broke out to new highs and remains on our buy list.

AMD:

Although we do not suggest semis as a favorable group currently but after a long consolidation, AMD has broken out and could be a good replacement for Nvidia at current prices.

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 holding, a further assessment will be required at that time to assess future potential.

NVO:

After breaking out, NVO reverted but bounced back, shrugging off negative headlines. Stock is still actionable if missed earlier or an additional entry is desired.

GOOGL:

Internet group as a whole was a strong performer and as expected, Google also scored new highs further reinforcing our confidence in the company and its stock. However, stock now seems to be a bit extended (although long term leader), a better entry could be sought around 179 levels.

AMZN:

Amazon also broke out to new highs and touched the 200 mark. The stock could face short-term resistance at this level but remains our favorite as a long-term winner. It has its upcoming Prime day in July and typically the stock performs well during this period of the year.

Interesting New Stocks for Watchlist:

APP:

Applovin Corp increased by 4.3% during last week and has shown a 6800% change in EPS last quarter and is expected to continue its long-term trajectory. However, it is expected to test 20 weeks MA at 73.49. Interested investors could wait for a while to see if it would come back and test this level.

NOW:

Mentioned last week, ServiceNow rose by 2.52% and continuously rose in the last 4 weeks. It is now eyeing its previous high at 815.32. If a breakout occurs, then ServiceNow could jump to new highs.

CYBR:

CyberArk is a leader in the Cyber Security space where it competes with CrowdStrike and Palo Alto Networks. The stock is eyeing its high at 283 and is actionable at current levels.

ELF:

Mentioned last week, ELF Beauty dropped by 4.97% last week. A better entry is sighted near the 20 weeks EMA at 181.29. Till then, we could wait as it appears that in the short run stock could further go down temporarily before bouncing back.

PLTR:

Palantir Technologies builds and deploys software platforms for the intelligence community, mainly the US. The stock has increased by 18.6% during the last month, 73.44% during the last year. It is currently eyeing a buy point past 27.50 levels and can quickly earn a 10-15% profit although Aug and September are historically not very good months during the past 5 years.

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