The Nasdaq pulled back to its 21-day SMA, while the S&P 500 held up in a tight range above its 10-day SMA. The Russell 2000 rolled over and is once again trading below key long-term support at its 200-day SMA. Meanwhile, the Dow’s gap-up open quickly faded, turning early strength into a distribution day. Market breadth continued to deteriorate, with only 140 new highs versus 557 new lows. Weakness among leading semiconductor names weighed on the Nasdaq. On a positive note, many of these stocks bounced late in the session, but it remains to be seen whether they can regain their footing and move higher. Leading fiber-optic and photonics names that had been showing promise also broke down over the past few days, including LITE, VIAV, and CIEN. Unfortunately, oil and gas, materials, and utilities led the market today. Most leading software names continue to hold up well despite the recent weakness, while mega-cap technology stocks show relative strength. Beyond these areas, however, little in traditional growth is performing well. The major indexes remain bifurcated, breadth continues to deteriorate, and leadership has weakened overall this week. I haven’t been stopped out of any positions, but the current market action has given me no reason to increase exposure. For now, capital preservation takes priority over pressing for new opportunities. I’ll continue to monitor how leading growth stocks respond at key support levels and wait for the market to demonstrate renewed strength before taking on additional risk. Stay patient, respect your stops.

The Nasdaq and S&P 500 bounced and held above logical support on Thursday and Friday, while the Russell 2000 struggled. The small-cap index rolled over, broke below several key support levels, and then failed to meaningfully reclaim them on Friday. Overall, the environment remains choppy, which does not make for a “hot deck.” Looking to market leadership for clues, semiconductor stocks appear to be trying to reassert themselves as potential leaders, which would be a major positive for the broader market. Names that stand out right now include INTC, AMD, MU, MRVL, MXL, QCOM, SMTC, and SIMO. We’re also seeing strength in several groups that previously provided leadership, including memory, photonics, AI, and crypto-related stocks. At the same time, many leading names in software and medical/healthcare continue to build constructive bases following significant moves higher. Overall, market leadership is developing constructively, supported by healthy rotation. However, many of these stocks still appear to need more time to work sideways and build out their bases before they are ready to move higher again. As a position trader and trend follower, I keep my exposure to a minimum and am often willing to stay in cash when the market isn’t in a clearly defined uptrend, as it isn't now. Unless you’re making consistent progress in this environment, it’s not a bad idea to minimize exposure until the broader market picks a clear direction. The key is to remain patient and disciplined. Don’t chase stocks. Be selective, wait for your ideal setup, and let the market come to you.

The market reacted negatively to Federal Reserve Chairman Kevin Warsh’s speech from Jackson Hole on Friday. NVIDIA’s earnings were unable to provide much support for either the SOX Index or the Nasdaq. More importantly, the Nasdaq’s inability to confirm new highs alongside the other three major indexes remains bothersome. The Russell 2000 also rolled over on Friday and closed below its key 50-day SMA—a development worth watching closely. Software continues to act constructively, with most cybersecurity stocks showing good relative strength. That said, many of these names have already made meaningful moves and could use additional time to consolidate before making their next advance. The same can be said for medical and healthcare stocks. Many of the leading biotech and genomics names have come a long way and would benefit from some time to digest their recent gains. Strong stocks don’t always need to move higher immediately. Sometimes, the healthiest thing they can do is simply pause and build a new area of support. Beyond software and healthcare, leadership is currently showing up in oil and energy-related stocks, materials, financial services, and Bitcoin-related names. There are plenty of companies within these groups that qualify as legitimate growth stocks, and their strength is undoubtedly helping support the major indexes. The problem is that this leadership has not been enough to offset the significant rotation out of many of the leading semiconductor, memory, and AI stocks—the areas that have traditionally represented the market’s highest-quality growth leadership. This rotation helps explain why the major indexes have made relatively little progress since the Nasdaq and S&P 500 reached their highs at the beginning of June. The question now is whether the market can resolve higher next week or whether the weakness in the Russell 2000 is an early warning that the other major indexes could follow. Friday’s action deserves respect, particularly given the deterioration in some areas of traditional growth leadership. This has not been an easy environment. If you’re making progress, keep doing what you’re doing. There is no reason to change a process that is working. But if, like me, you’re primarily a position trader and trend follower, don’t be surprised if you’ve struggled to gain traction. The market has been choppy, and choppy markets are designed to make traders question their process. This is where discipline matters. When the market isn’t offering clean opportunities, there is nothing wrong with reducing exposure, being more selective, and waiting for the environment to improve. The goal isn’t to always be fully invested. The goal is to be positioned when the market gives you something worth owning. NOTE: Earnings season is winding down, but don’t let your guard down. Always check a company’s upcoming earnings date before initiating a position. Even the strongest-looking setup can carry significant risk as an earnings report approaches.