After a remarkable showing in July (and a strong start to August) for the overall markets, traders across the world are asking themselves the same question … will this rally keep going?
I’m not convinced yet, but I will say that I’m seeing more signs of this now than I have since this historic correction began eight months ago.
What started as a small uptrend on the SPDR S&P 500 ETF Trust (NYSE: SPY) has now turned into a multi-week rally — the first of its kind in months.
I can’t ignore how significant that is. So today, we’ll look at all the evidence…
First, there was a surprisingly bullish market reaction to a hawkish Fed move.
Could these events be the ‘one-two punch’ the market’s been waiting for? Can this bear market rally evolve into a multi-month uptrend for the major indexes?
Keep reading and I’ll give you my thoughts on these questions (plus more)…
The Fed Hikes and the Tech Whales Beat
Last Wednesday, the Fed hiked interest rates another 75 basis points in an attempt to combat the worst inflation the country has seen in four decades.
After every previous rate hike in 2022, the market tanked. But last week, the market rallied as the Fed got more hawkish.
This is where I started to pay very close attention…
After that, we got earnings beats from AMZN and AAPL — two of the biggest weightings in both the SPY and the Invesco QQQ Trust (NASDAQ: QQQ).
Traders responded enthusiastically, with the SPY surging 5% immediately following the big tech prints.
Make no mistake … These are notable shifts in market sentiment.
Before last week, it seemed like even companies that reported strong earnings were getting punished. There was no escaping the unstoppable selling.
But that part seems to be changing, at least for now…
If these tech whales can still exceed analyst expectations in the wake of sky-high inflation, there may be light at the end of the tunnel. Rumors of a looming recession may be exaggerated.
And beyond untouchably massive tech companies and central bank signals, I’m also seeing some encouraging signs among retail traders that could be foreshadowing further upside in the markets…
Retail Traders are Back (with a Vengeance)
Remember all the crazy retail trader action that was happening in 2021?
From GameStop Corp. (NYSE: GME) and AMC Entertainment Holdings Inc.’s (NYSE: AMC) historic gamma squeezes to Support.com Inc.’s (NASDAQ: SPRT) shocking move in August, it felt like retail traders were running the entire stock market for much of last year.
And to me, a big characteristic of the 2022 bear market has been the complete and total lack of ‘meme stock’ price action.
Those hyped-up retail trader stocks dovetailed with crypto into a bearish nosedive at the start of the year and haven’t shown any signs of life … until recently.
Towards the end of June, I wrote about an absolutely insane, retail-driven short squeeze that was occurring in shares of Revlon Inc. (NYSE: REV).
After filing for bankruptcy, REV took off into an unexpected buying frenzy.
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Reddit meme stock traders started talking up the name in huge numbers, and in the process sent the shares surging 650% in just two weeks.
In hindsight, I think this crazy move may have been a meaningful signal that a near-term bottom was forming in the overall markets.
The following month, July, saw the SPY soar 8%. Coincidence? Maybe, but maybe not.
After all, the sentiment of retail traders (like us) is much more insightful than many market participants realize.
This retail revolution hit a crescendo this week with maybe the most insane move I’ve ever seen in a single stock. Yes, I’m talking about AMTD Digital Inc. (NYSE: HKD).
This zero-revenue company went from trading for just over $20 on July 21 to trading for as high as $2,200 this week — an increase of 10,700% in eight trading days!
Let’s put this in perspective. If you had put $1,000 into HKD shares on July 21, you could’ve potentially sold them on Tuesday for over $100,000!
Additionally, at one point on Tuesday, HKD was the 20th most valuable company in the world … with no revenue.
I mean … are you kidding me?!
This % gain would be astounding for even weekly options contracts to bag, but these are common shares we’re talking about here, making the move even more unbelievable…
All this to say, retail traders (and meme stocks) seem like they’re back with a vengeance.
And I don’t think we should overlook this development as a potential signal of overall market strength.
Will the rally keep going? No one knows for sure, but there are a few things we can do to help us inform our decision-making…
Watch for bottoming signs.
Stay tuned to the major index charts.
And keep your ear to the ground for any noticeable changes in retail trader sentiment.