Time to Make Money
Setups for Taiwan Semiconductor (TSM), Advanced Micro Devices (AMD), Super Micro Computer (SMCI), Microstrategy (MSTR), Crowdstrike (CRWD), and Brazil (EWZ)
This past week the bulls ran through PPI, CPI and Options Expiration unscathed. The Bulls have control and the Bears don’t get to eat right now. Next week the economic news calendar is pretty light, except for the NVDA earnings and FOMC Minutes on Wednesday, so unless there is black swan news, this uptrend is likely to continue.
Market Conditions
The S&P 500 (SPY) hit new highs and was up 1.65% for the week. Looking at the chart below, price is trending higher on the 9 EMA. It is a Swing Traders’ Market as: 1) SPY is above an upward sloping 21 EMA, 2) MACD is above 0 and 3) there are Net New Highs. The price of the SPY gapped up on Wednesday after a positive CPI report and is now moving sideways and digesting those gains. This is bullish and it will probably consolidate for a few days as the 9 EMA catches up, setting up another leg up. The McClellan Oscillator is also positive, despite showing some slowdown. The Percent of S&P 500 Stocks Above the 50 SMA is only at 64%, and has room to run before breadth becomes overbought.
It may be time for Large Cap Growth and Technology to take the lead, as the second half of May is usually a strong seasonal time for the Nasdaq 100.
Nonetheless, there are two concerns that the market is too hot. First, the price of the SPY may be getting stretched from the 9 EMA. You can see from the chart below that when price gets about $8 above the 9 EMA there tends to be slight pullbacks or consolidation. This makes sense as the market corrects in either time or price. Right now it seems like the market wants to correct in time via a sideways pause.
Second, the VIX may be too low. The last time the VIX was this low was around 12/12/2023. What followed was a sideways choppy consolidation that lasted 23 trading days (SPY = black line below).
Although the concerns that the market is overheated are reasonable, the counter argument is that this rally has strong momentum and is broad across all sectors. Last week Technology and Communication Services took the lead once again, making this a risk-on rally now. Moreover, Real Estate, Basic Materials, and Healthcare all beat the SPY last week, telling us that this rally has good participation.
Conclusion: All signs point to the rally continuing, even if it goes through a pause of a slight pullback. The FOMC Minutes or NVDA earnings on Wednesday could cause some volatility, however the trend is up and there are no signs of it reversing yet. Focusing on pullbacks to the 9 or 21 EMAs is a good strategy right now. The risk-on character of the rally this week makes us want to look into setups in the Technology sector. You have to make money when the environment is right and this strong environment may start to weaken by early to mid June.
For Paid Subscribers we’ll go over setups in Taiwan Semiconductor (TSM), Advanced Micro Devices (AMD), Super Micro Computer (SMCI), Microstrategy (MSTR), Crowdstrike (CRWD) and Brazil (EWZ).
Introducing The “Founding Members Club”
Recently (Friday, 17th May) we officially started our “Founding Members Club”. These are articles where investment analysis and technical analysis requests from Founding Members will be shared with other Founding Members in posts ONLY accessible to all the Founding Members. We will keep these articles concise but sharp. We also encourage comments and engagement among members. The goal is to create a fun and communicative club, where we help each other achieve financial freedom together!
We also have some other benefits in the works for our Founding Members, such as:
An Annual Cycles Forecast (in addition to the Quarterly Cycles Forecast)
Weekly articles consisting of attractive Trade Setups only accessible to the Founding Members
A Telegram/Discord channel for more timely Trade Setup updates and idea generation
We’ll share a detailed update with our Founding Members once the structure for these new benefits is internally finalized and begins to get implemented.
Disclaimer - All materials, information, and ideas from Cycles Edge are for educational purposes only and should not be considered Financial Advice. This blog may document actions done by the owners/writers of this blog, thus it should be assumed that positions are likely taken. If this is an issue, please discontinue reading. Cycles Edge takes no responsibility for possible losses, as markets can be volatile and unpredictable, leading to constantly changing opinions or forecasts.