Several things you need to know before next week

First, the conclusion: The market looks calm on the surface, but beneath it, capital is undergoing a significant reshuffling.
On Thursday, the S&P 500 closed roughly flat, briefly reaching near the key options strike price of 7,550 in early trading, close to the all-time high of 7,600. Net options flow in the first 30 minutes was positive, pushing the market higher. However, a large concentration of market maker gamma exposure between 7,500 and 7,550, combined with a negative shift in flow, triggered hedging selling pressure from market makers, dragging the market back down by the close, ending flat. Meanwhile, QQQ fell 1.71% on the day.
Behind this divergence, the relative performance of the S&P 500 versus the Nasdaq is bottoming and rebounding, indicating that the S&P is catching up to the Nasdaq, with capital flowing out of the overcrowded semiconductor sector. More critically, looking at the percentage of stocks above their 5-day, 20-day, 50-day, and 200-day moving averages, market breadth is improving even as prices stagnate or decline. This suggests a healthy sector rotation.
Where is the money going: AI core stocks are cooling, while SaaS and defensive sectors are playing catch-up
Over the past week, there has been a clear reshuffling of capital flows beneath the market surface. AI core stocks are generally oscillating at high levels, consolidating. Micron fell 5.57%, closing near $97.5, already below its 20-day moving average but still above the 50-day moving average and the primary trend line since April. However, its leading momentum over the past two months has slowed, and it is now testing trend line support.
Meanwhile, SaaS stocks are clearly playing catch-up: Microsoft, despite its AI attributes, is supported by its massive SaaS business, rising 1.41% against the trend on Thursday. ServiceNow has rebounded for five consecutive trading days. The SaaS sector as a whole is showing potential to break upward from low levels. If capital continues to flow out of AI, long-suppressed software stocks like Salesforce may have room for catch-up gains.
Defensive and cyclical sectors are also taking the baton simultaneously. The industrial sector led the Dow to a new all-time high. Healthcare, consumer staples, homebuilders, regional banks, biotech—these previously overlooked areas are all attracting capital.
Operational rhythm for memory and chip stocks
The AI memory line (MU, SNDK, SOXL, etc.) has fallen to key moving averages. The probability of a rebound next week is high, but it is likely difficult to break through directly after the first wave of resistance. For short-term long positions, it is recommended to reduce positions near resistance areas. If the price meets resistance and then retests the lows, observe whether the lows stabilize before deciding whether to re-enter. Another important variable this week is the ADR listing of SK Hynix, which requires close attention. If the price rises before Friday, it is advisable to take profits on leveraged short-term positions to avoid the "buy the rumor, sell the news" scenario. Long-term positions can be held patiently.
The correction in the optical communication line is nearing its end. Taking LITE as an example, this round of washing out is meant to set up for a better rise later. The next accumulation zone is in the 600 to 650 range, with the 200-day moving average around 610. For AXTI, the 200-day moving average is around 53 and has already rebounded. If it hasn't fully corrected, the lowest point will likely not fall below the 200-day moving average at 42, with a gap near 45. For AAOI, watch the 200-day moving average at 100 and the 50-day moving average at 82. For NOK, consider buying near the gap at 11.3. The earnings report on July 22 is likely to be good. If the correction completes before earnings, a slight earnings beat will trigger a nice catch-up rally.
Macro perspective: Data has significant noise, but liquidity remains ample
A notable macro phenomenon: In the 17 months since early 2025, U.S. nonfarm payroll data has been revised downward in 14 months, with a cumulative loss of 710k jobs. April and May together were revised down by 74k. On average, the official data is inflated by about 42k per month. Applying this pattern to the just-released June nonfarm payrolls initial figure of 57k, deducting this typical downward revision, actual job growth might be only around 15k. Additionally, full-time employment in June plummeted by 507k, marking the third consecutive monthly decline.
But despite soft economic data, U.S. stocks remain resilient. The S&P 500 is only about 2% away from its all-time high, driven primarily by liquidity. In May, M2 money supply surged to a record level, the largest increase for the same period in the past five years. A large amount of cash continues to flow into the stock market. Seasonally, the S&P 500 has recorded positive returns in July for 10 consecutive years since 2014, which is one reason why even with the sharp decline in semiconductors over the past couple of days, the broader market remains well-supported.
Technical analysis: The market is coiling within a triangle and is likely to break upward in July
Currently, the market is oscillating at high levels within a triangular consolidation pattern. This triangle will eventually be broken, as July's seasonal tendency is bullish. The S&P 500 is targeting 7,700 to 7,800. The short-term volatility within the triangle appears more like a coiling action before a breakout, so don't lose patience due to a few days of sideways movement.
Several sectors to accumulate on dips
The Healthcare ETF ($XLV ) is worth watching, as it has broken out on volume from a two-year consolidation resistance at 159. In midterm election years, the healthcare sector has historically delivered positive returns every year. It is currently near 163. Stocks within the sector like $ISRG are also worth noting.
The medical equipment subsector via $UNH is also mounting a bottom reversal, with a potential breakout above the 430 resistance zone this week, aiming to test the next strong resistance area between 445 and 450.
In the consumer sector, $MCD (McDonald's) is worth noting. A surge of over 4% on Thursday is an unusual move for a stock with a typical daily volatility of only 0.78%. Long-term, its primary uptrend from mid-2022 has once again received perfect support during this 22% correction. Historically, each correction has been followed by a strong V-shaped recovery. Long-term investors can buy the stock directly, while short-term traders can use call options to trade the swing.
Additionally, if the MAG7 (seven mega-cap stocks) continue to be sold short by bears ahead of earnings season, it may present a short-covering opportunity window.