Market backdrop
The market just went through a wild week. Cracks in the AI trade started showing three to four weeks ago, pointing to a de-risking move into the election. The guidance then was to reduce exposure or go to cash into the election. That paid off, since the selloff showed up right after the election.
The selloff is a short-term reaction. After a run over the last couple of years, a pullback was due at some point. The election became an excuse for sellers to come in. Some of those support levels will likely break to the downside. No panic yet, but the rest of the year may stay rocky, with a strong 2027 ahead.
My approach is techno-fundamental: a thesis for each trade based on fundamentals, sectors, and overall market sentiment. The chart is the final judge because it shows price action. No matter how bullish or bearish you feel about a stock, you check the technicals.
The S&P 500 still has more downside. Dip buying AI and technology stocks now means catching a falling knife. The better plan is to wait for the chart to firm up, set support levels, and trade off that. Once data and earnings show the drop was an overreaction, the chart can guide re-entry into strong names.
AppLovin (APP)
APP is up 68% over the last 5 days after earnings and a large buyback announcement, and up close to 8% on the session. The strength surprised me. A trading rule I use: you get the gap, you sell the gap. Day two usually brings selling from people who took the gap. Instead, the stock held the entire earnings gap up and went green about 8% into day three. That means buyers are in charge. In short-term trading, day trading or swing trading, you look for strong stocks that reject the mean and do not follow everything else. APP is one of those few bright spots.
Even after this move, APP sits 38% below its highs. A trend line connecting two prior highs is being broken to the upside right now, which is early evidence the broader downtrend could end. Key levels: 338 (became the new low after earnings, a possible ceiling in the range), 275 (where the gap opened), 225.19 (52-week low). Price has taken out an old low near 377. The next gap fill sits around 416.
The 251-day EMA (orange, one year) comes in near 399. It is the longest-term and most important moving average, and the only one price has not yet crossed above. RSI is above 70, overbought, usually read as strength in a trending market. On the volume profile, price broke above the point of control near 320 and is now at a smaller node near 390. Another node sits at 444 to 486. Heavy recent volume on a big move signals high conviction.
Amazon (AMZN)
AMZN is a rollover idea from last week, up 9% on the week and holding its year-to-date gains. It took the selloff better than the semis; the selling hit chipmakers harder than the hyperscalers. The idea shared last Friday survived the chaos with only a small pullback. If it does no wrong, stay long.
If there is a push to scale back data center expansion, AMZN is insulated. AWS has run for over a decade with data centers everywhere, giving it about as much capacity as anyone to feed AI demand even if expansion gets squeezed. On top of that, retailers tend to trend up every fall and winter into Black Friday and Christmas, and AMZN is the biggest retailer. The combination of the chart, the strength over the week, and that insulation makes it a buy.
Levels: the gap opening lined up with the new low near 252, the most prominent level in many minds. Post-gap highs sit near 273, giving a natural range to watch for breakouts. A steep upward trend line in white is still in play. A bearish engulfing candle formed the prior day, where a large red candle swallowed the previous day's smaller green candle, but there was no downside follow-through, so the move may be steadying.
The 5-day EMA (dark blue) is near 258.54, lining up with the trend line. A break below it could open a test of the 21- and 63-day EMA confluence near 254. RSI may be invalidating its downward trend line, a positive sign for bulls. Watch for new highs in RSI and price taking out recent relative highs. On volume profile, the point of control is 247; volume drops off above 265 and drops further above 273. Moves above those levels signal potential breakouts. Price is trading around 263, up about 1.25%.
Microsoft (MSFT)
MSFT is a similar idea to AMZN, minus the retail angle: a deeply entrenched hyperscaler with heavy infrastructure. On the one-year daily chart it has swung a lot, with big selloffs and spikes, yet even after the selloff, the election, and all the news flow, it is still up over the year. It hit higher 52-week highs recently and has pulled back into the 530s, the previous breakout level, roughly back to its year-to-date mark in the low 500s. Anyone who bought over the last year is, in theory, green if it holds these levels. If it takes out the low 500s, the idea is busted - always respect the chart. If things shift into the end of the year and into 2027, this sets up a lot more upside.
Levels: 504 stands out most, a recent prominent low and the low set after earnings in late October. 485 is another low, and 475 was the post-gap low. A gap formed at the current lows near 523, got filled, and price is now bouncing. A triangular price pattern broke out to the upside, hitting new highs near 559. After a retreat, price may be breaking back above that trend line. The low of an earlier gap near 542 (red line) is now a mark to beat to the upside; another high sits near 552.
Price is crossing above the two shortest moving averages, the 5-day (dark blue) and 21-day (teal), which could now act as support, especially the 5-day near 535 where it meets the trend line. RSI sits above the 50 midline but has not yet broken above its downward trend line, so it has not confirmed. Volume profile shows a smaller node from 525 to 536 and a much larger node from 475 to 510, both possible support. Price is around 538.19, up 0.4%, slightly less than the broader market.
