Market Overview
Over the past month, the market has undergone a meaningful shift. What had been a weak and uncertain environment has quickly transitioned into a strong uptrend. The speed and persistence of this move are important and suggest that market direction has turned higher.
At this point, I am very bullish. While the market is extended in the short term and could see a pullback, I would view it as a normal development in a strong advance and a potential opportunity rather than a reason to become defensive.
As always, my approach is not to predict, but to respond. With conditions now clearly improving, I have adjusted accordingly and will continue to monitor for signs that either confirm continued strength or indicate a change in direction.
QQQ: A Powerful Shift in Market Character
The first chart shows the Nasdaq 100 ETF, QQQ, and highlights a dramatic change in market conditions since last month’s newsletter.
At that time, I noted that the market had broken below key support and was in a downtrend. I also pointed out that while we had seen a reversal day, I needed to see several specific bullish confirmations before increasing exposure. Those included a break above the downtrend line, a move back above key moving averages, a follow-through day on strong volume, and leadership from strong stocks.
I also stated that the odds favored a continuation of the correction. That view turned out to be wrong.
Shortly after that newsletter, the market delivered all of the bullish signals I was looking for. QQQ gapped above the downtrend line and, in a single move, reclaimed the 21-day exponential moving average, the 50-day moving average, and the 200-day moving average. From there, the index advanced sharply without any meaningful pullback. I have noted this move on the chart as a strong bullish advance.
The magnitude and speed of this move are important. QQQ is now more than 9 percent above its 50-day moving average and over 10 percent above its 200-day moving average. It is also well above the prior consolidation range. Moves of this strength and persistence typically indicate strong institutional demand and suggest that the market direction has shifted higher.
This strength is confirmed in the lower panel by On Balance Volume. OBV broke above its downtrend line and accelerated higher, which I have labeled as accumulation. This indicates that the advance is being supported by strong buying pressure rather than short covering alone.
As soon as these bullish signals were confirmed, I responded by aggressively increasing exposure. That is a key part of my process. I do not try to predict what the market will do. Instead, I wait for confirmation and then act accordingly.
At this point, the market is clearly in an uptrend, and I am very bullish. That said, the market is also extended after such a sharp move higher. While a short-term pullback could occur, I would view that as a normal and healthy development and, more importantly, as a potential buying opportunity within a strong market.
Client Account Update
Client accounts are fully invested. As the market delivered the bullish confirmation signals outlined in last month’s newsletter, I increased equity exposure to align with the improving conditions.
My approach remains consistent. I rely on what the market is actually doing and adjust positioning as the evidence changes. The recent strength and follow-through suggest that the market has transitioned into a solid uptrend, and current allocations reflect that shift.
While the market is extended in the short term, that is often a feature of strong advances. Rather than stepping aside, I view any pullback as a potential opportunity. There are times when I may use hedges to manage short-term risk, but those periods are also when I look to add to existing positions or initiate new ones in strong stocks that may have moved too quickly to buy earlier.
At this point, the overall environment remains constructive. As long as that continues, I will stay fully invested and focused on growth opportunities. If conditions change, I will adjust accordingly.