Chart Advisor: CMT Association x Investopedia

Author of the week

I am the author this week of Chart Advisor: A CMT Association newsletter, originally published in partnership with Investopedia. This week, I will be doing an article that will be published each day.

Junk Bonds Indicate Investor Confidence

Despite the volatility in equity indexes, the bond market reflects substantial investor confidence. Rapidly climbing U.S. 10-year yields have pressured broad equity indexes into correction territory. However, interest rates on high-yield or "junk" bonds have not risen nearly as sharply as government bond yields. While the U.S. 10-year yield has surpassed its 2024 peak, junk bond yields remain significantly lower. This suggests that the rise in yields is driven primarily by rate considerations, with risk concerns actually diminishing.

Since bonds are typically the less emotionally driven market, this drop in risk concerns, as indicated by bond performance, provides a very bullish outlook for equities.

Oversold Breadth To Support Broad Bull Market

The sharp, interest rate-driven market correction was widespread, with the majority of Nasdaq-listed stocks falling below their respective 50-day moving averages (the blue indicator). Historically, when 30% or fewer stocks trade above their 50-day moving averages, the market often sets the stage for a multi-week, broad-based rally. Last week, we saw the initial signs of such a recovery, as stocks climbed nearly 5% over just a few trading sessions.

This renewed strength coincided with breadth reaching oversold levels and the MidCap index retesting a key multi-month support level—creating a strong foundation for a potential rally to gain momentum.

Energy Infrastructure is the “AI” Leader

Positioning in the leading stocks of any rally is critical to achieving significant outperformance—just look at NVDA since the start of the AI revolution. Currently, energy supply has become a critical bottleneck in future AI growth plans, with even former President Trump highlighting its importance as a vital area of focus.

GEV, VST, and CEG are three leaders in the AI infrastructure space, demonstrating tremendous relative strength. All three resisted the worst of the December correction and have already surged to new highs, signaling intense institutional accumulation. Note: GEV reports Wednesday before the bell.

Google Bases Calmly

Of the "MAG 7," only GOOGL has its hand in every major technological innovation currently unfolding. It leads in general AI with its Gemini platform, is a front-runner in autonomous driving with its Waymo division, and recently shocked the world with its Willow Quantum computer—a groundbreaking leap in computing power.

GOOGL also demonstrated remarkable resilience during the December selloff, maintaining its position near highs while forming a tightly constructed flat base, signaling strong institutional support..