The TML Talk | January 8th, 2025

Market Overview

• The market has been weak, with indexes showing downside action. The NASDAQ remains the strongest of the major indexes but is hovering around the 50-day moving average.
• A notable theme is relative strength divergence: participants are watching for stocks or sectors holding up better than the market to gauge whether this is a “last man standing” scenario or if new leadership emerges.
• The quantum computing theme has taken a significant hit, with leading stocks falling sharply following comments about the technology’s timeline (15 years away).
• Leadership stocks such as PLTR, SQ, and Netflix are at critical levels near their 50-day moving averages, which will act as an indicator for broader market health.
• The semiconductor sector is notable for its relative strength, with names like MRVL, AVGO, and SMTC holding up better than the broader market.

Key Lessons

• Watch Leadership Stocks: Leaders like PLTR and AVGO act as key indicators for broader market health. If these break critical support levels, it could signal deeper market weakness.
• Follow Relative Strength: In uncertain markets, focus on stocks showing relative strength compared to their indexes.
• High-Volume Alerts: Use high-volume breakouts or significant relative strength as early clues to leadership and potential new themes.
• Sector Rotation: Pay attention to money flow between sectors. For example, retail, airlines, and gold showed relative strength this week.
• Manage Risk Proactively: Avoid large positions and use tight stops in environments with high distribution days and weak breadth.

Actionable Takeaways

• Create a watchlist of high-relative-strength stocks like SMTC, MRVL, and AVGO, and monitor how they perform relative to their moving averages.
• Avoid buying strength in weak market conditions unless there is overwhelming volume confirmation.
• Watch for undercut-and-rally patterns or pullbacks to the 50-day/10-week moving average as potential entry points for stocks like ABNB, SMTC, and others.
• Monitor key indexes (NASDAQ, S&P 500, Russell 2000) for positive divergence and support at critical levels like the 50-day moving average.
• Pay attention to new themes and potential leadership in sectors such as semiconductors, gold, and possibly education (e.g., LRN).

Stock Mentions and Commentary

Positive Commentary (Strong Relative Strength):

• $SMTC: Excellent relative strength in the semiconductor sector. Tight action near highs and relative strength hitting new highs before price—a strong candidate to lead if the market improves.
• $AVGO: Constructive base and tight action despite broader market weakness. Weekly and monthly charts look strong.
• $MRVL: Another strong semiconductor name, showing tight action around key levels with solid relative strength.
• $WIX: Tight weekly setup with accumulation signals. A candidate to watch for breakout strength.
• $TSLA: Constructive consolidation above key averages despite market weakness. Holds potential as a leader.
• $LRN: Constructive consolidation within the education sector. Relative strength is high despite a smaller group size.

Neutral Commentary:

• $PLTR: Broke below the 10-week moving average on higher volume, signaling potential weakness. The 50-day moving average will be key to watch.
• $ABNB: Tight consolidation, but could use more time to form a stronger base. A pullback to the 50-day would be healthy.
• $NVDA: Recent breakout failure and heavy volume distribution. Needs time to set up again but remains a critical stock in semiconductors.
• $IBIT (Bitcoin ETF): Bitcoin is losing momentum after a strong run. Consolidation around the 50-day moving average will be important.

Negative Commentary (Weak or Breaking Down):

• $SQ: Closed below its 50-day moving average on higher volume—a sign of deteriorating leadership.
• $SKYT: Significant weakness in the semiconductor group. No longer actionable.
• $FUBO: Despite a high-volume gap-up, its low price and speculative nature make it challenging to trade.

Summary of Sector Themes

Semiconductors:

• Strongest relative strength sector in the market. Leadership stocks include $MRVL, $SMTC, $AVGO, and $ACLS.
• Watch the SMH ETF for clues on the sector’s overall health.

Gold:

• Gold and related ETFs like GLD outperformed this week as money flowed into defensive assets.

Retail & Airlines:

• Retail and airline stocks showed strength but are not considered classic growth leaders.

Education:

• Names like $LRN within the education space are holding up well, though the group is smaller.

Bitcoin/Cryptocurrency:

• Bitcoin has lost some momentum, with signs of distribution on daily and weekly charts. The next key test is the 50-day moving average.

Market Sentiment

• Sentiment remains cautious as distribution days pile up, but certain sectors and stocks are showing relative strength.
• Traders should focus on identifying new leadership and be prepared for either a continuation of the pullback or a possible rebound led by the NASDAQ.