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The stock market (meaning the institutional benchmark index of the market, the S&P 500) broke out of its boring sideways trading range yesterday, but there weren't a lot of champagne corks popping.
Maybe that's because traders and investors are afraid the long-awaited breakout is another fake-out.
The S&P 500 has been trading sideways since April, in a range between 4050 and 4190. More recently that range has been even narrower, with stocks trading between 4100 and 4150.
Now it's important to put that into some context, that context being another measure of the market, the Nasdaq Composite. Most of the time, the major market benchmark indices (the S&P, the Nasdaq, and the Dow Jones Industrials Average) all trade similarly, meaning if you look at a chart of each of the indices they'd look a lot alike. But not now.
While the S&P 500 and the Dow have been trading sideways, the Nasdaq Composite and the Nasdaq 100 have been climbing steadily higher.
The difference is the Nasdaq benchmarks are predominated by big-cap tech darlings, including Apple, Microsoft, Amazon, Meta, and Google, and they've been on a tear.
The distinction is important because while the S&P 500 also claims those stocks in their makeup, their weight is larger in the Nasdaq, so it's a better benchmark of what tech stocks are doing.
They've been going up on account of investors and traders betting that the Fed will start cutting interest rates, maybe in the second half of this year. Since rising rates hammered tech stocks, also referred to as "growth stocks," it stands to reason that cutting rates would benefit those beaten-up stocks first and most.
So, traders and investors are, in a sense, frontrunning the Fed's cutting rates by piling into tech stocks.
But with inflation still elevated, with rates recently rising again and increasing talk of a recession, and no talk of cutting rates, what should worry investors (and is worrying me) is how committed are investors to buying this breakout with the obvious headwinds everyone's feeling.
In essence, the market's balanced on a knife's edge. So today, I want to get tactical: I'm going to tell you exactly how you'll know whether we're in for a nice ride higher or a fall off the proverbial cliff, and how you can make money either way.
Let's get started.
Here Are the Key Support and Resistance Levels to Look For
So, big-cap tech stocks have had good earnings for the most part and have become so-called safe-haven stocks with lots of liquidity.
But it's been frustrating for traders and investors watching the S&P 500 trade sideways while the Nasdaq has been climbing. They look at the S&P as a broader measure of the market and the economy. And some, who are smart enough, question the rise of tech stocks when the Fed's nowhere near cutting rates and to the contrary are pushing a "higher for longer" narrative as opposed to any Fed talk about cutting.
But now that the S&P 500 has broken out of its malai…
About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.