June has been a Summer Squeeze, What Will July Bring?

The Market According to Nvidia

This year, June has squeezed higher, as there was certainly no ‘sell in May and go away.’ The squeeze was mainly driven by Nvidia (NVDA), which is finally showing signs of cooling off after its post-split rally. Nvidia is experiencing some profit-taking after hitting the 140 post 10 for 1 stock split. Regardless, this is still an impressive run for the stock, which has really led the stock market to make repeated new highs. It is now the ax of the markets, meaning as goes Nvidia, so goes the markets.

This chart of NVDA shows that amazing run to the up-side, and recent pull back. It is interesting to note the MACD, which is turning bearish. 

The Summer Doldrums

June starts the summer doldrums; the earnings season ends at the beginning of June and does not pick up for the next quarter until the middle of July. So, it is traditionally a very listless market that either squeezes one way or the other. This year we squeezed to the upside, thanks to the big run by Nvidia and other AI-related companies. You also tend to see oil prices spike in June as the summer travel season starts. As we get into July 1, we have the July 4 holiday weekend, and then right smack in the middle of July begins the second-quarter earnings season. As always, the banks and financials are the first to announce earnings, and they will set the tone for the rest of the earnings season.

This Chart of the SPY still shows an uptrend, however the MACD is starting to cross over indicate some bearish price action is to be coming soon. 

Election Interference

So far, we have not seen any election-related volatility, which means that it is yet to come; but it will come! This year’s election will be extraordinarily volatile, with the market swinging as the two opposing candidates rise and fall in the polls. But don’t expect the election volatility to pick up until September. First, we must deal with the earnings season, and then after that, the two weeks at the end of August when most of the nation’s kids go back to school. Then the relatively quiet first two weeks of September, when the Northeast children return to school. Everybody is back at their desks in September, and the election campaigns start to really get vicious and heat up; then we would expect to see increased election volatility through September and October. 

This Chart of the USO shows the seasonal run up of oil going in the summer increase in demand due to summer travel. An increase in demand for oil will lead to an increase in the price of oil, which could cause inflation to start to rise again. This all depends on how high oil prices rise too, and the overall strength of the economy, which still seems to be strong.

Time to Correct

Remember, overall, valuations are high relative to historic prices. The market has not made a significant correction in months, with the last one being a minor correction back in April. But then again, the market surged to new highs, so expect some market correction in September and October, which will be partially triggered due to election volatility. And don’t forget that in the last two weeks of August trading volumes were extremely low. The last two weeks of August are one of the lowest periods of trading volume. The two lowest times of the year are the end of August, meaning the final two weeks, and the final two weeks of December between Christmas and New Year’s. At these times in the market, big players can push stocks around for various reasons, so be extra careful. 

On that note, we would like to wish everybody a happy Fourth of July and a wonderful summer from the entire team here at DAS Trader. Trade well until next time!

Written by Michael DiGioia, Director of Education
Mike is available for One-on-One Coaching. Learn More