Recorded the day after the midterm elections, episode 169 of Traders Edge asks whether the rotation out of AI-related stocks is the start of something bigger. Jim Iuorio and Bob Iaccino bring on market technician David Settle to look at the charts. Settle starts with breadth. Since October 1, the share of S&P 500 stocks above their 50-day moving average has jumped from about 21% to about 71%, and about two-thirds are above their 200-day. That kind of breadth usually comes off a market low, yet the S&P 500 is actually a bit lower than on October 1. The reason is an unusual negative correlation between the Nasdaq 100, dominated by mega-cap tech and semiconductors, and the equal-weight S&P 500. Settle expects that correlation to turn positive again, and in his experience, when the two start moving together, it is usually to the downside first. On the post-election rally, Settle sees a one-day relief move, similar to the day after the 2018 midterms, before markets go back to trading on earnings. Bob notes that the Magnificent 7 trailed the rest of the S&P in earnings beats this season, partly because of one-off items such as Amazon’s accounting for its Anthropic stake and a large Meta litigation charge. Then come the levels. Bob shows a possible double top on the monthly QQQ chart, which would only trigger on a monthly close below 661.14; the measured-move target would be around 573.63. Until then, he says, the pattern isn’t active. He also watches the 200-day near 680.56 and the 50-week near 672.80. Settle says that if QQQ fails at its 200-day moving average, there’s little volume support until about 630. The rotation trades look stretched to both. Financials (XLF) and healthcare (XLV) have run far from their moving averages; Settle notes XLV’s roughly 14% five-week gain is one of the largest in the ETF’s history and looks parabolic. If he had to put new money to work, he’d choose technology over those sectors. Jim, who owns XLV, has been selling calls against it and considers buying put spreads for protection. On gold, Settle wants to see a move above about 4,200–4,250 before turning bullish; Bob would target about 4,720 on a weekly close above 4,097.20. Crude is testing its 200-day near the 88 area, and Bob notes the Brent–WTI spread narrowed, which may suggest the market expects the Iran conflict to ease. The biggest event ahead, they agree, is Nvidia’s November 17 earnings. Key takeaways: – Breadth surged since October 1 while the cap-weighted index stalled. – Settle expects the Nasdaq–equal-weight correlation to normalize, usually via a decline. – Bob’s QQQ double top only triggers on a monthly close below 661.14. – Nvidia’s November 17 earnings are the next major test for AI stocks. This episode is educational and not investment advice. |
