Summary
- The S&P 500 experienced its fastest positive momentum reversal in over five years, driven by geopolitical events and a sharp market rally.
- Technology and Energy sectors are the primary movers, with semiconductors like NVDA leading gains while smaller-cap software stocks lag.
- Market risk is elevated due to extreme cap-weighted skews, Iran-related oil volatility, and the potential for sector rotation toward undervalued small caps.
- Long-term value strategies, such as the Piotroski-Graham portfolio, continue to outperform, with recent breakouts in names like Harley-Davidson and SoundHound.
- Active portfolio rotation based on market, sector, and MDA signals is recommended to capitalize on volatility and evolving sector leadership.
Introduction
The vertical line on a chart is almost always followed by a vertical line in the other direction. Speed kills in both directions.” ~ Paul Tudor Jones
The most dangerous thing is to buy something at the peak of its popularity. At that point, all the favorable facts and optimistic interpretations have been built into the price.” ~ Howard Marks
Timing matters, and it matters greatly. I have spent the last 35 years trading, researching, and constructing algorithms to identify and leverage the value across fundamental, technical, and behavioral finance models. Of the ten portfolio models designed for optimal portfolio mixes for members to beat the market at Value & Momentum Breakouts, eight come from enhancing well-tested anomaly research in published financial journals. All of the models continue to outperform the S&P 500 in live forward testing here on Seeking Alpha, and again this year.
Whether you are into dividends, ETFs, long-term value, forensic accounting anomalies, CFO insider trades, or aggressive short-term breakout picks, most of what I do is point investors to opportunities here on Seeking Alpha for large short- and long-term gains with a long track record of success based on your risk preferences.
The Year’s Most Positive Signal Rallies Markets, But Iran Risk Favors Select Sectors
Our S&P 500 momentum gauges reflect the largest stocks and fund flows in the market and react to the MDA [multiple-discriminant analysis] cycle conditions of all 500 stocks in the index. This ratio of the most extreme positive (Segment 6) and extreme negative (Segment 2) gives us the momentum signal changes daily, weekly, and monthly. The weekly S&P 500 gauges below show the most extreme positive reversal in the multi-year data set, from near max positive lows on March 30th to current highs of positive momentum back to March 28, 2024.
In my March market article, I discussed the best signs for confirming early market bottoms as we approached peak negative MG values in March. Dip-buyers had been adding through the longest negative signal and 5 consecutive S&P 500 weeks of declines since 2022 until a huge capitulation at the end of March:
As expected, peak negative momentum reversed from the highest negative levels since April 2025. But, unexpectedly, this reversal has been the fastest frenzied rush to return capital to the market in many years. It appears the primary catalyst has been picking the end of the Iran war, now with an unstable and uncertain ceasefire pause between the US and Iran.
This news-driven market cycle began its incredible rally the hour President Trump remarked publicly that “the Iran war may end within 48 hours.” That fueled a +2.91% rally in the S&P 500 on March 31st and the largest 3-week market gain in over a year after suffering five consecutive weeks of declines. A few days later, Iran shot down a US fighter jet and rejected any talks for peace. The market moved ever higher in bullish stair-step patterns, and the current ceasefire pause has sustained the record gains so far into April. What comes next is likely more volatility and risk that favors certain trades and certain sectors.
Ordinarily I talk about how to detect the strongest early market bottom using only Sector and Market gauges, as I shared last time:
1. The S&P 500 and Technology gauges turning positive again.
2. A majority of sector gauges turning positive, including a majority of the 3 mega-cap sectors, Communications, Technology, and Consumer Cyclicals.
3. At least 2 consecutive days of market gains and three consecutive days of rising positive gauge values.
Or you could watch how these different gauges come off near bottoms for a rebound into Q2.
Just a few short weeks ago we were talking in our investment group about max negative momentum conditions with all the gauges negative to an extreme, except Energy and the likelihood of some rebound into Q2:
Now I am already discussing the risks of market tops in this incredible rush to benefit from the lows caused by record-high Oil prices and the Iran war. This has easily been the fastest reversal from low to high momentum that I can document in more than 5 years.
What Are the Opportunities?
As I say frequently in prior articles, “We can never have a Major Index recovery without the participation of the semiconductor segment.” Our market indices are most heavily weighted on mega-cap stocks. Mega-cap stocks are most numerous in the technology sector, and that is most impacted by the semiconductor segment.
The two biggest movers right now are Technology and Energy with high divergence and potential for more large reversals.
The Direxion Daily Semiconductor Bull 3X ETF (SOXL) chart shows the extreme reaction as April began.
As I have highlighted above, the technical indicators are back in high short-term overbought levels that have always been followed with some level of profit-taking.
What makes the Technology sector signal unique is that we have 99 Semiconductor-related stocks in the sector, while we have 395 Software-related stocks, and their returns this year are extremely divided. 15% of the Semiconductors have over $100 billion market cap, while only 2.7% of the Software sector are $100 billion or larger. This contributes to an ongoing skew where fewer larger cap stocks are pushing the market higher while more smaller technology stocks are heading lower.
