Daily Plan 1.25.24
AI- the only game in town.
Hey traders-
Bit odd session today where I thought there was someone in a hurry to offload pretty heavy size near the highs.
The market did open with a big gap up this morning around 4900 and then proceeded to test 4930 shortly a couple of hours later.
It is near these highs we started seeing some sell pressure which ended up not only closing the cash open gap but also traded down into the key level from yesterday before closing the day a little above 4900.
I think the main reason for rally this morning was the stronger than expected PMI data from the US, for both manufacturing and services. This normally would have been bearish for stocks, and if you look at the breadth, it was bearish for most of the stocks, except the chip stocks which again had an excellent day today.
Ultimately, these services prices are going to keep upward pressure on services side of the inflation. However that does not seem to dampen the mood for these AI stocks. In fact stronger these PMIs, harder the AI stocks rally.
I believe this is because the services inflation for companies is an incentive for them to search for AI based solutions to reduce costs associated with payrolls and Human Resources. I think this could be one factor which is helping AI stocks remain bid.
How solid is this AI bandwagon?
Look at this IBM bullish call I shared a few months ago at 130. It is then I shared this 200 dollar target, which we came to within a few points today.
Of-course now a lot of IBM bulls will be created here at 200, however, this Subsatck was one of the first and perhaps only one to bring the strength in IBM to light, several months ago near 130.
I alluded to this earlier in my weekly plan as well. There is no end in sight to the AI driven strength in the market and that is what is being reflected in the general market as well.
Levels for tomorrow
I need to see some meaningful weakness in these AI stocks to call for a deeper cut in the main SPX index. As it is, I think despite their strength, these stocks could use some cooling down to sustain this trend longer term. Many of these are technically very overbought. That in itself is not a bad thing in many cases, but when you look at the amount of money chasing a few ideas like these stocks, things can get crowded pretty fast.
Having said this, I will lean against the 4922-4925 level for tomorrow.
Scenario 1: Unless the sell off today from the highs was a one time programatic sell, I expect some resistance to come in at 4925 tomorrow if tested for a move down into 4890.
Scenario 2: On the downside, 4890 will be an important level for me. If we open below it and stay below it, I expect a test of 4856-4860 level.
At time of this post, we last traded around 4900.
~ tic
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