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New lows continue to outnumber new highs on both the NYSE and Nasdaq, while the NYSE advance-decline line has fallen to new lows—further evidence that participation beneath the surface remains weak. Small and mid-cap stocks continue to lag the major averages, and leadership is concentrated in a relatively narrow group of large-cap, capitalization-weighted names that appear to be benefiting from a flight to quality and perceived safety. At the same time, the macro backdrop remains challenging. The 10-year Treasury yield is holding above 5%, crude oil pulled back, but remains near $100 a barrel, and the Federal Reserve’s latest projections suggest a continued upward trajectory for rates. At the very least, investors will likely have to contend with at least one additional rate increase before year-end. Interestingly, some former high-growth stocks that underwent significant corrections are beginning to attract interest again—not necessarily because investors are embracing aggressive growth, but because lower prices have made their valuations more compelling relative to earnings and expected growth. In effect, some former momentum names are increasingly being viewed through a relative-value or PEG-ratio lens. As a result, many of these names have become extended and vulnerable to a pullback. Bottom line: this remains a highly bifurcated and selective market. The major capitalization-weighted indexes can give the appearance of broad strength even while a significant portion of the market is behaving considerably worse underneath. Until breadth improves, new highs expand, and leadership broadens beyond a concentrated group of names, I would continue to treat the strength in the headline indexes with a degree of skepticism and caution. We currently maintain a relatively light number of long positions. $TWLO, $DE, and $TEVA have held up well and continue to stand out as our strongest performers. On the defensive side, we remain short $IWM. We reduced the size of what had been an overweight short position, but continue to maintain a hedge given the ongoing weakness in small caps and the broader deterioration beneath the surface.

Just weeks away...

RT @markminervini: We are seeing a market that, on the surface, appears to be moving into a Confirmed Uptrend, with several major indexes b…

We are seeing a market that, on the surface, appears to be moving into a Confirmed Uptrend, with several major indexes breaking out or moving to new highs. However, the underlying evidence is far less convincing. What is missing is a bona fide follow-through day—a strong advance of 1% or more on increased volume—accompanied by broad participation and a plentiful number of individual stocks breaking out and following through successfully. Without that confirmation, we view the action with a degree of suspicion. The market remains severely bifurcated. Small caps, represented by the Russell 2000 (IWM), remain near their lows, while the Dow and many economically sensitive cyclical stocks continue to lag. The real strength is concentrated in the mega-cap stocks that dominate the capitalization-weighted S&P 500 and Nasdaq, along with heavily weighted indexes such as the QQQ and FNGS. This kind of narrow leadership is more characteristic of a difficult, volatile, potentially late-stage environment than a healthy, broadly advancing market. Rising interest rates and elevated oil prices provide additional headwinds, and we are still in September, historically a challenging period for equities. Sentiment isn't providing much clarity either. Some measures are registering meaningful fear and bearishness, while others are closer to elevated levels of bullishness. In other words, the mixed picture in the indexes is also being reflected in sentiment. When the evidence is this conflicted, we drill down to what ultimately matters most: the individual stocks. If quality stocks are breaking out, following through, and rewarding us for taking risk, we participate. If they aren't, we stay defensive. Right now, the evidence at the individual-stock level is also mixed and lacking and does not provide the type of confirmation that would justify aggressive exposure. For now, we remain in a cautious, prove-it-to-me posture—taking selected opportunities where they present themselves, keeping risk tightly controlled, maintaining hedges, and allowing the market and our individual positions to earn our way into greater exposure. Become a Minervini Private Access member today and get the Minervini Markets 360 platform included. minervini.com minerviniprivateaccess.com 4stocktraders.com

Chess has no luck component. Both players see everything, there are no random events, and for any position there is theoretically an optimal move. If you play perfectly, your result is determined entirely by the sequence of choices made by you and your opponent. Backgammon is different because the dice introduce uncertainty. You can make the statistically best move and still lose because of an unfavorable roll. Conversely, someone can make a bad move and get bailed out by luck. That's where it starts to resemble trading. A skilled trader isn't trying to know exactly what happens next; they're making decisions based on probabilities, risk, and expected value. A great setup can fail. A lousy trade can occasionally work. The quality of the decision and the outcome of that individual decision aren't necessarily the same thing. The major difference is that backgammon still has fixed rules and mathematically defined probabilities—the odds of rolling particular combinations are known. Markets don't even give you that luxury. The probabilities themselves are uncertain and constantly changing as conditions and participants change, which is where skill and experience come in.

Consider this: Let's put an AI stock trader against another AI stock trader. If they both read the same books, and they both execute everything flawlessly and have access to all the informationand opportunities, then how could one beat the other? It couldn't! Why? Everything would be efficient. Where are the efficient market hypothesis people when you need them. Lol.

Chess is a terrible comparison to the stock market. Chess is a closed system with defined rules, complete information, and—given a position—an objectively best move. Markets are nothing like that. They’re dynamic, probabilistic, adaptive, and driven by constantly changing variables and human emotions and behavior. Anyone using chess as proof that AI can simply “solve” the market fundamentally misunderstands markets and market efficiency. AI is an incredibly powerful tool—but it is not a strategy, and it is not a substitute for judgment. At Minervini Markets, we use some of the most sophisticated AI tools and programming available. But we use AI for what it is: an assistant that enhances research, analysis, and decision-making—not the final arbiter. The edge isn’t AI.

Those who think AI is going to magically do the work, pick stocks and manage their portfolios at a high level are in for a big disappointment. Just like throwing darts, there will be periods when it will land on the correct boxes. But ultimately it will be a victim of it's own efficiency, and the work and strategies that AI users are running from will work better than ever. Money is made in pockets of inefficiencies, not where everyone congregate.

If your trading can stand firmly on these legs alone, then you’ve earned your way to holding for bigger moves if you choose. From there, it’s no longer a question of if... it's question of how much.

Technology remains the clear market leader with strength concentrated in fiber optics, semiconductors, data storage, networking, hardware, machinery, and selected medical groups. Energy and Transportation have been notable laggards. At the same time, we have a market that is severely bifurcated. Applying the Cycle Composite concept across the major indexes highlights just how significant the divergences have become. The Nasdaq Composite has deviated considerably from its historical seasonal pattern, while the Dow has tracked its composite more closely. The Russell 2000, meanwhile, has been in a relatively steady downtrend over the past five weeks. The more important message is what is occurring beneath the surface. The average stock has experienced seasonal weakness much closer to the Cycle Composite pattern than the capitalization-weighted S&P 500. RSP, MDY, and IWM remain 5%–7% below their highs, while only 37% of stocks are above their 30-week moving averages, down sharply from 63% in August. This type of narrowing participation and divergence can occur around market tops, although it does not necessarily mean a top is in place. The question is: are we experiencing a stealth correction that is near the end, or a more serious warning. Until breadth and participation improve, we remain patient and highly selective, concentrating on quality stocks displaying strong relative strength and holding key support levels. We continue to hold a small list of longs that have held stops and performed well. Names include: $TWLO, $DE, $MRK, $TEVA, $TGTX, $HTFL - this morning we reduced our $IWM short/hedge and took off our overweight. minervini.com minerviniprivateaccess.com 4stocktraders.com

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