Magnificent 7 Enjoys Surge During Record-Setting Rally

The primary market theme all week has been skeptical investors worried about an overbought market getting caught offside as it keeps climbing higher.

It has been a record-setting rally, with the Nasdaq up 13 straight sessions, its longest winning streak since 2009, and the S&P 500 and Russell 2000 up 12 of 13 sessions. Never before has the market gone from misery to new highs so quickly.

Two Things Are Driving This Market

There are two issues driving the action. The first is the news flow about Iran and a possible deal to end the war. Progress is apparently being made, but it has been a pattern of President Trump making optimistic comments that the Iranians deny, and then news that something positive is happening. The latest is that there may be more negotiations in Islamabad on Monday but the details about uranium and the reopening of the Strait of Hormuz are murky.

The second issue driving the market is renewed excitement about AI and a resurgence of the Roundhill Magnificent Seven ETF (MAGS) . These heavyweights looked pathetic after fourth quarter earnings but they have come to life and the concerns about an AI bubble have disappeared. There is some major reshuffling in AI leadership, but the one thing that is clear is that this is a technology making profound changes to the economy and the lives of many people. It isn't just some trendy technology that will be quickly forgotten.

The Economy Is Holding Up

Adding to the positive tone, weekly jobless claims fell to 207,000 this week, the biggest weekly decline since February. That takes some of the air out of the labor weakness narrative that the bears have been leaning on, while the drop in oil price is undermining the inflation worries.

Individual Stocks Look Healthy

While the bears are constantly whining about the overbought indices, they are missing the fact that there is some great price action in individual stocks. Yes, many things are extended, but there are some attractive chart setups and good momentum. If you look at individual stocks rather than the indices, this market looks healthy and is in position for more upside.

Earnings Season Ahead

Stock picking is the name of the game right now, especially since we are heading into the heart of earnings season. There will be some big winners and losers as reports hit, but this is when we start to discover the next market leaders. Netflix (NFLX) missed after the bell Thursday night and was down nearly 10% on Friday. We should see more of that action in both directions in the next couple of weeks.

My Game Plan

While many folks think this market action is unjustified, the likelihood is that we are not going to see a sudden drop. There will be pullbacks and consolidation, and we may see some sell-the-news action when the Iran situation is finalized, but the market appears to be underestimating the positive economic ramifications of that event. Stay focused on the price action rather than the narratives.

Have a great weekend. I'll see you on Monday.

At the time of publication, DePorre had no positions in any securities mentioned.