In this article:

• Stocks, indexes rally across the board
• Will Tesla stock split kill or boost the rally?
• Expect more volatility ahead in the market

What a difference a day makes.

After starting the month on a sour note, the stock market rebounded Wednesday for a sharp rally higher. The surge was fueled by positive news from various earnings reports, the technology sector, and Federal Reserve (Fed) chatter countering any calls of an active recession.

Simpler’s traders are focused on internal market signals that lead to potential trades.

Technology, Nasdaq push market higher

Across the board, it was a stellar hump day in the three major indexes.

The technology-laden Nasdaq led the way during the mid-week stock rally that included companies in streaming services, smart phones, payment services, and healthcare topping the leaderboard. 

In the market today, the Dow closed at 32,812.50 points to gain 1.29% (adding 416.33 points on the day). The Nasdaq surged to 12,668.16 points for a 2.59% spike while the S&P 500 jumped 1.56% to 4,155.12 points.

All three indexes erased losses to start the month, and the S&P 500 is up 11.5% from a June low mark that set off recession talk in the stock market.

Top performers on Wednesday included Moderna (MRNA – up 17.39%), Disney (DIS – up 4.34%), Apple (AAPL – up 3.81%) and PayPal (PYPL – up 9.35%). 

Will this broad-based rally continue higher?

Whether the rally is paused may hinge on the Tesla (TSLA) vote on a 3-for-1 stock split slated for Thursday.

Over its lifetime, Tesla stock has experienced dramatic ups and downs, including becoming a pandemic darling and then an outcast as value waned. The Elon Musk, Tesla CEO, vs. Twitter battle didn’t seem to age well among traders.

Tesla stock has been on an uptick since earlier this year and another stock split may be what the company, and the overall market, needs to continue the current uptrend. Tesla stock raced higher after a 5-for-1 split in August, 2020. (This leads to some quip about the road well-traveled should be the road taken ahead.)

Tesla price action has pushed higher over the last five days, including sprinting through the first two days of this month as the market pulled back. Tesla closed at $922.19 Wednesday, up 2.24% on the day and 5% higher over the last five sessions.

As an example of how Simpler’s Traders have played this sporadic market from July through this week, Mary Ellen McGonagle, Senior Managing Director of Equities, shared her top picks through this period.

She took positions in various stocks that she closed after following the profit potential. Her picks with dates trades and percent of gain taken included: Amazon (AMZN, 7/19, up 18.4%), Enphase Energy, Inc., (ENPH, 7/21, up 33%), Tesla (TSLA, 7/8, up 21.7%), and TSLA, 7/21, up 12.7%.

With more earnings reports released and nonfarm payroll reporting Friday, this week should prove exciting for traders.

Hot tech setting up fall rally?

Another technology stock that Simpler’s traders are watching is Advanced Micro Devices, Inc. (AMD).

AMD reported earnings after the close on Wednesday, beating expectations on earnings and revenue. But a company forecast of less than stellar third quarter projections tripped up the stock in after-hours movement.

AMD closed at $98.09, down 1.21% for the daily session. News isn’t all bad for the much-watched, global semiconductor maker. Computer chips are a hot topic for their importance in everything from smartphones to automobiles.

AMD is considered in the “hot zone” for setups.

“The stock actually managed to have sizable gaps higher the last two quarters, despite the semiconductor shortage, the bear market, and despite the destruction of technology stocks,” said Danielle Shay, Vice President of Options at Simpler Trading. “That’s because this is a company that holds significant long-term prospects and solid underlying fundamentals that overall can help it hold its own throughout the current economic conditions.”

AMD also beat earnings the last seven quarters in a row, Danielle said.

Danielle also shared more about expectations of increased demand for a variety of high-tech and artificial intelligence (AI) workloads exponentially growing in the future, and AMD already outpaces possible competitors both in the maturity of their technology and the business deals the company has in place.

Analysts agreed, with Barron’s reporting that Wall Street is encouraging investors to buy AMD shares when the ticker stumbles. Analysts estimate the chip maker’s second-quarter financial results reveal increasing long-term value despite difficulties in the personal-computer market, Barron’s reported.

This is a stock to watch for traders, and investors, going forward.

Pro trader reviews market big picture

John Carter, founder of Simpler Trading, reassessed the big picture of what is happening in the market.

The market is rallying because quantitative tightening has peaked, John stated. He believes there is a strong possibility that the Fed may not even push a rate hike at the next Federal Open Market Committee (FOMC) meeting in September. He pointed out how the March, 2023 market internals are already pricing in an interest rate cut).

How this plays out could change with any strong influences hitting the market.

In the meantime, according to John, the market is looking to the economy to determine how bad things get during a recession. He anticipates more of a market uptick for some time. Once the market settles into this pattern, traders should expect more volatility into October and November before the hard battle over how bad the recession gets will begin.

As the summer closes and the fall trading season begins, John will be watching the 200 simple moving average (SMA) in stocks and the indexes.

His concentration is on the E-mini S&P 500 futures contract (ES) which tracks the S&P 500 Index. John is looking for the ES to move higher into the 200 SMA through early August, then pull back into the 21 exponential moving average (EMA) before rallying into the fall. As with all trade patterns and examples, this potential setup is not guaranteed with volatility lurking throughout the market.

Other areas John is watching include the Volatility Index (VIX) continuing higher; the Nasdaq pushing higher through the wall of resistance; and bonds rallying on expectations of a recession. Precious metals of gold and silver are expected to follow bond movement.

Work past saber-rattling media hype

With all the saber rattling in the news headlines, i.e. “Pelosi about to start a war as China invades,” Simpler’t traders ignore the hyped news and focus on real events and technical signals that can influence the market.
No matter the market environment, the team at Simpler Trading continues to work through the volatility and uncertainty to focus on trades with real potential.