First Pullback to 50-day Moving Average
On Wall Street, even the strongest uptrends and bull markets eventually succumb to gravity and must pullback. Rather than chasing highs like most retail investors do, “smart”, big-money institutional investors often act as liquidity providers during market pullbacks and buy the dip. Rather than arbitrarily buying pullbacks, these institutional investors use moving averages to smooth out price. The 50-day simple moving average is the most optimal moving average to gauge the intermediate-term trend.
However, not all pullbacks to the 50-day moving average are created equally. The first pullback to the 50-day moving average after a correction or bear market is typically the most high-probability buy zone. For instance, the first pullback to the 50-day moving average following the COVID-19 and tariff corrections served as a phenomenal buy zone. Currently, the Nasdaq 100 Index (QQQ) is retreating to the 50-day moving average for the first time since emerging from the Iran War correction, offering investors a high-probability buy zone.
Image Source: TradingView
July is Seasonally Strong
The end of June and the beginning of July is one of the strongest seasonal periods for stocks. According to Jeffrey Hirsch (@AlmanacTrader), the Nasdaq’s 12-day Midyear Rally spans the last 3 days of June through the first 9 days of July and has gained 2.5% since 1985 on average and is up 78% of the time.
Meanwhile, July has been unusually strong recently. In fact, the S&P 500 Index has been higher in July for eleven consecutive years!
Image Source: Zacks Investment Research
Market Participation is Broadening
For years, one of the key arguments among bearish Wall Street analysts has been that the “Magnificent 7” stocks have artificially propped up the major market indices due to their massive market caps. Last week, Apple (AAPL) dragged down the index after the company announced price hikes for many of its products due to memory shortages. Meanwhile, Alphabet (GOOGL) shares fell on news that it lost some of its top AI talent to privately held Anthropic.
Nevertheless, the market is exhibiting bullish breadth beneath the surface. Ryan Detrick (@RyanDetrick) points out that although the S&P 500 was down 2% last week thanks to the Mag 7 weakness, “more stocks are above the 20-day, 50-day, and 200-day moving averages than at the start of the week.” Detrick added, “In fact, 65% of the components are above their 200-day moving average, which is the most since early March.”
Image Source: Stockcharts.com
Bottom Line
A perfect bullish storm of seasonality, a high-probability technical pullback, and market breadth improvement is brewing for investors in July.
Beyond Nvidia: AI’s Second Wave Is Here
The AI revolution has already minted millionaires. But the stocks everyone knows about aren’t likely to keep delivering the biggest profits. AI’s second wave is moving from infrastructure to implementation and these companies are at the forefront of this transition, positioned to become what Amazon and Google were to the internet era.
Apple Inc. (AAPL) : Free Stock Analysis Report
Invesco QQQ (QQQ): ETF Research Reports
Alphabet Inc. (GOOGL) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
