Technical Analysis Weekly Market Update
By Eli Levy, Senior Analyst
CPI tomorrow is a market moving report and we anticipate higher volatility going into and right after the report.
Over a week old but still the best quote — Jeff DeGraff of Renaissance Macro had what I think was the cleanest framing of where this market sits as we close out April: we’re still dancing, but we’re staying in close proximity to the door. The tape, as DeGraff put it, is the dominant factor — and the tape is moving in the right direction. That keeps him constructive.
Artificial Intelligence (AI)
The driving engine behind this week’s push higher in stocks continued to be the artificial intelligence (AI) infrastructure plays, especially in the chip stocks. AMD reported earnings on Tuesday and helped fuel additional bullish momentum as AMD CEO Lisa Su once again revised longer-term growth expectations higher. The continuous data points from the chip companies suggest that compute demand still outstrips supply.
Another euphoric week and not without reason. Friday morning’s stronger-than-expected monthly jobs report appears to be reinforcing the notion that the labor market is firm, and the AI secular growth story will continue to support economic growth, regardless of higher oil prices and no rate cuts from the Federal Reserve. Are markets becoming complacent? Possibly — but current conditions still support bullish momentum. The global economy is experiencing a major capital expenditure cycle, while earnings expectations continue to trend higher.
Bullish Positioning
As long as pullbacks are consistently bought and dip buyers continue to be rewarded, bullish positioning can reinforce itself and extend trends longer than many expect. When markets continue stair-stepping into new all-time highs, there is little historical resistance overhead. In these environments, price discovery remains active, meaning the market is still attempting to determine fair value.
Near-term conditions may appear overbought, particularly in areas like the semiconductor sector, but overbought conditions alone do not determine when a pullback will occur. Strong momentum can persist longer than expected.
Instead of predicting reversals solely from stretched conditions, traders should monitor for actual signs of weakening momentum, such as: bearish reversal candlestick patterns on the daily timeframe; failed breakouts or loss of follow-through; deteriorating breadth or momentum confirmation; and negative news.
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