Mixed Market Action Relieves Overbought Tension

Analysts at Stock Exchange

The market action on Thursday was a good example of what I have been discussing recently. The market does not need to collapse to address overbought technical conditions. The S&P 500 managed a small gain while the Roundhill Magnificent Seven ETF (MAGS) had a small loss, and breadth was negative with about 49% of stocks gaining by the closing bell.

That is good action unless you are short the overbought indices. While stocks didn't do much, that is exactly what is needed to improve market health. Nervous holders were able to exit, and folks with FOMO didn't have to chase new buys.

Iran and Lebanon

The news flow about Iran remains hopeful, with the blockade working and the likelihood of more talks soon. The big development on Thursday is that President Trump announced a 10-day ceasefire between Israel and Lebanon beginning at 5 p.m. ET, following the first direct talks between the two countries in decades. Trump has also invited the leaders of both countries to the White House. Hezbollah has not formally confirmed its participation but this is a significant step toward regional de-escalation.

What's Ahead

Netflix (NFLX) will kick off non-bank earnings reports on Thursday, but we will have to wait until next week before more reports roll in. There is no major economic news on the agenda, but next Tuesday, retail sales numbers will be worth watching.

There isn't much out there right now to trip up the positive expectations about the Iran situation. The biggest problem is the high level of consternation and frustration over this huge rally. Many folks are mystified why their concerns about oil, inflation and slowing growth are being ignored.

The primary story the bears are missing is the AI theme's renewed energy. The Magnificent Seven took a little rest on Thursday but it is going to be interesting to see what happens when earnings reports start to hit.

My Game Plan

I reviewed several positions in my midday article. I believe we are moving into an environment that favors stock picking over index-driven moves, so researching individual stocks and understanding charts will be important. I'm optimistic about the short-term opportunities, but it will require vigilance and decisive action.

Have a good evening. I'll see you tomorrow.

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