It is certainly a dynamic period for the stock market, with the $NASDAQ(.IXIC)$ recently hitting record highs and the $S&P 500(.SPX)$ maintaining positive momentum. This strong performance heading into July does lead to discussions about a potential "July rally."
The setup for a July rally looks increasingly compelling given the confluence of technical strength, macro tailwinds, and investor sentiment.
My long-term holdings of AI stocks like Nvidia and AMD have performed well.
Market Momentum Snapshot
NASDAQ Composite just closed at a record 20,630.66, powered by AI giants like Nvidia, which briefly touched a $4 trillion market cap.
S&P 500 climbed to 6,280.46, continuing its breakout from the April lows and forming a golden cross on July 1 — a bullish technical signal where the 50-day MA crosses above the 200-day MA.
The Magnificent Seven tech stocks now make up ~40% of the S&P 500’s market cap, reinforcing the rally’s breadth.
Macro & Policy Catalysts
Tariff risks have been partially neutralized by Trump’s 90-day pause and selective suspensions, restoring investor confidence.
Labor market resilience (147K jobs added in June) and easing inflation expectations have reduced the odds of a July rate cut, but September remains in play.
The “TACO” trade — Trump Always Chickens Out — continues to fuel dip-buying behavior, with investors betting on policy reversals if markets wobble.
Factors Supporting a Potential July Rally
Positive Momentum: The NASDAQ's record highs and the S&P 500's sustained positive trend suggest strong underlying bullish sentiment and continued investor confidence.
Historical Seasonality: Historically, July has often been a favorable month for stocks, with a tendency for positive performance (sometimes referred to as the "July effect" or "summer rally").
AI Enthusiasm: The ongoing excitement around Artificial Intelligence (AI) and the performance of tech giants continue to be significant drivers, pushing indices higher.
Earnings Season: Q2 earnings season begins in July. If corporate earnings reports meet or exceed expectations, particularly from the major growth companies, it could further fuel market gains. Analysts are generally expecting positive earnings growth for 2025.
Interest Rate Expectations: There's speculation about potential Federal Reserve interest rate cuts in the second half of 2025, possibly as early as July, if inflation data continues to soften. Rate cuts typically make equities more attractive.
Labor Market Resilience: Despite some signs of strain, a strong labor market generally supports consumer spending, which is a significant component of GDP.
Technical Indicators
MACD bullish crossover and sustained momentum above the zero line suggest accelerating upside.
VIX has dropped to a 15 handle, signaling reduced volatility and risk-on sentiment.
Fibonacci extension targets for the S&P 500 point toward 6,400 as the next resistance zone.
Strategic Implications for July
Given my focus on asymmetric setups and macro overlays, this environment favors:
High-torque growth sleeves in AI infrastructure and semiconductors.
Defensive yield plays in midstream energy, which may benefit from tariff exemptions and stable cash flows.
Dynamic rebalancing using VIX and interest rate signals to capture momentum while managing downside risk.
In the next section, I will be diving into a July return cone simulation and sector-specific setups that align with the current rally dynamics.
July Return Cone Simulation
Using Monte Carlo methods and volatility cone modeling, we can project potential price paths for the S&P 500 and NASDAQ based on historical volatility and expected returns:
Interpretation:
The 68% cone represents the most probable range of outcomes.
The 95% cone captures tail risks and upside extremes.
Current price action is tracking near the upper edge of the 68% cone, suggesting momentum continuation unless macro shocks intervene.
In the next section I will be simulating the cones for specific sectors or ETFs.
Sector-Specific Setups for July
Here is how key sectors are positioned for asymmetric upside in this rally window:
AI Infrastructure
Leaders: $NVIDIA(NVDA)$, $Advanced Micro Devices(AMD)$, Broadcom
Catalysts: Cloud capex rebound, tariff exemptions on advanced chips
Setup: Breakout from consolidation zones; RSI > 60, MACD bullish
Target: +8–12% upside in July
Midstream Energy
Leaders: Enbridge, Kinder Morgan, Williams Cos.
Catalysts: Stable cash flows, tariff carve-outs, inflation hedges
Setup: Bollinger Band squeeze with upward breakout; yield support
Target: +4–6% upside with low beta
Financials (Selective)
Leaders: $JPMorgan Chase(JPM)$, BlackRock, PNC
Catalysts: Rate stability, credit expansion, Q2 earnings tailwinds
Setup: Return cone shows 68% probability of +2–4% move
Target: Defensive rotation play if tech overheats
Industrials & Defense
Leaders: Lockheed Martin, Raytheon, L&T (India)
Catalysts: Budget allocations, geopolitical stability
Setup: Fibonacci retracement bounce; MACD crossover
Target: +5–7% upside
Now I will share how I layer in technical indicators and ETF proxies to sharpen the July rally playbook. Here is a breakdown by sector sleeve:
AI Infrastructure
Technical Overlay
Return Cone (July): +8–12% range; 68% cone sits between +6.5% and +10.5%
RSI: Most leaders (Nvidia, AMD, Broadcom) show RSI > 65 — bullish but not overheated
Fibonacci Levels: Nvidia retraced to 38.2% in early June and bounced; extension targets suggest $1600–$1700 zone
ETF Proxies
Midstream Energy
Technical Overlay
Return Cone (July): +4–6% range; 68% cone sits between +3.5% and +5.5%
RSI: Hovering around 55–60; room to run
Fibonacci Levels: Kinder Morgan bounced off 50% retracement; targeting 61.8% zone near $19.80
ETF Proxies
Financials (Selective)
Technical Overlay
Return Cone (July): +2–4% range; 68% cone sits between +1.8% and +3.5%
RSI: Mixed signals; JPMorgan near 60, BlackRock near 50
Fibonacci Levels: JPMorgan retraced to 38.2% and consolidating; breakout above $210 targets $220+
ETF Proxies
Industrials & Defense
Technical Overlay
Return Cone (July): +5–7% range; 68% cone sits between +4.2% and +6.5%
RSI: Lockheed Martin and Raytheon near 58–62; bullish momentum
Fibonacci Levels: LMT bounced off 50% retracement; extension targets $490–$510
ETF Proxies
Now we will proceed to enrich the technical overlays with Bollinger Bands and MACD to sharpen timing precision and trend validation across our July rally sleeves:
AI Infrastructure
Bollinger Bands: Nvidia and AMD pierced upper bands with expanding volatility — classic breakout signal. Band width widening suggests trend continuation.
MACD: Strong bullish crossover above zero line; histogram expanding, confirming momentum.
Implication: High-probability continuation toward Fibonacci extension zones ($1600–$1700 for NVDA).
Midstream Energy
Bollinger Bands: Kinder Morgan and Enbridge show band contraction followed by upward breakout — volatility squeeze resolving bullish.
MACD: Positive crossover with rising histogram, though slope is moderate — suggests steady accumulation.
Implication: Yield-backed upside with low beta; Bollinger support near lower band reinforces downside cushion.
Financials (Selective)
Bollinger Bands: JPMorgan trading near middle band; no breakout yet. Bands tightening — potential for volatility expansion.
MACD: Flat histogram, signal line convergence — neutral momentum.
Implication: Wait for MACD confirmation or Bollinger breakout before scaling exposure.
Industrials & Defense
Bollinger Bands: Lockheed Martin pierced upper band with expanding width — bullish volatility signal.
MACD: Bullish crossover with histogram acceleration; momentum building.
Implication: Setup favors continuation toward $490–$510 extension zone.
In the following section I will be layering in RSI divergence and volume-weighted momentum adds a powerful lens for validating trend strength and spotting early reversals.
Here is how each sleeve stacks up:
AI Infrastructure
RSI Divergence: Nvidia and AMD show hidden bullish divergence — price forming higher lows while RSI dips slightly, reinforcing trend continuation.
Volume-Weighted Momentum (VW RSI): VW RSI > 60 with rising slope — confirms strong buying pressure backed by volume.
Implication: Momentum is not just price-driven but volume-supported, increasing confidence in breakout sustainability.
Midstream Energy
RSI Divergence: Enbridge shows classic bullish divergence — price made a lower low while RSI formed a higher low in late June.
VW RSI: Hovering near 55–58, trending upward — suggests accumulation phase with rising conviction.
Implication: Defensive yield sleeve gaining traction; divergence signals a potential July inflection point.
Financials (Selective)
RSI Divergence: JPMorgan shows neutral RSI structure — no divergence yet, but RSI stabilizing near 50.
VW RSI: Flat near 48–52 — momentum indecisive, volume not confirming trend.
Implication: Wait for divergence or VW RSI breakout above 55 before scaling exposure.
Industrials & Defense
RSI Divergence: Lockheed Martin shows hidden bullish divergence — higher price lows with lower RSI lows.
VW RSI: Rising above 60 with green momentum bars — confirms institutional accumulation.
Implication: Setup favors continuation toward Fibonacci extension targets ($490–$510), with volume-backed momentum.
Which Sectors Could Lead A July Rally Based On Current Market Trends?
Based on current market dynamics and macro signals, several sectors are primed to lead a July rally — and they align well with my barbell strategy approach:
Leading Sectors for July Rally
Technology (AI & Semiconductors)
Catalysts: Record-breaking momentum in Nvidia, Broadcom, and AI infrastructure; Q2 earnings tailwinds; fiscal stimulus via “One Big Beautiful Bill”
Trend Signals: RSI > 65, MACD bullish, Bollinger Band breakouts
ETF Proxies: QQQ, SMH, AINF
Why It Leads: Tech powered the S&P 500’s breakout and continues to attract institutional flows
Industrials
Catalysts: Infrastructure spending, defense allocations, and tariff exemptions on strategic goods
Trend Signals: MACD crossovers, Fibonacci retracement bounces
ETF Proxies: XLI, ITA, VIS
Why It Leads: Broadening market leadership beyond tech; strong earnings visibility
Financials
Catalysts: Capital markets rebound, IPO surge, and robust trading revenues
Trend Signals: Bollinger Band squeezes, MACD neutral-to-bullish
ETF Proxies: $Financial Select Sector SPDR Fund(XLF)$, KBE
Why It Leads: Benefiting from M&A activity and rate stability; undervalued relative to tech
Real Estate (Selective REITs)
Catalysts: Seniors housing boom, Canadian REIT outperformance, acquisition momentum
Trend Signals: RSI divergence, VW RSI rising
ETF Proxies: MREL, MID 600 (Canada-focused), VNQ
Why It Leads: Defensive yield with growth upside; attractive valuations
Healthcare (Selective)
Catalysts: Breakthroughs in obesity and diabetes treatments (e.g., Eli Lilly’s orforglipron), robotic surgery milestones
Trend Signals: MACD recovery, RSI divergence
ETF Proxies: MHCD, XLV
Why It Leads: Deep value and pipeline catalysts despite Q2 underperformance
In the next section I would like to share the simulated multi-sleeve portfolio cone for July, integrating my target sectors and overlaying macro signals like VIX and rate expectations to refine allocations and risk bands.
Multi-Sleeve Portfolio Cone: July Simulation
Using Monte Carlo modeling and volatility cone overlays, here is a projection for a diversified portfolio across five leading sectors:
Portfolio-Level Cone (Weighted):
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Expected Return: +5.9%
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68% Range: +4.2% to +7.6%
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95% Range: +2.0% to +9.8%
Macro Signal Overlay
VIX Signal
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Current VIX: 15.8 (flat curve)
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Implication: Risk-on sentiment; favors overweighting high-torque growth (AI, Industrials)
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Adjustment: +5% tilt toward AI Infrastructure
Rate Expectations
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10-Year Yield: 4.4% and rising
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Implication: Rate-sensitive sectors (Financials, Midstream Energy) gain defensive appeal
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Adjustment: +3% tilt toward Midstream Energy; reduce Financials by 2%
Final Adjusted Allocation
Factors to Watch and Potential Risks:
Valuations: After significant gains, some analysts suggest that market valuations, particularly for the S&P 500, are near cycle highs, potentially limiting further upside.
Tariff Uncertainty: New and extended tariffs, particularly impacting trade with key partners, introduce uncertainty that could affect corporate margins and global economic growth. The expiration of some tariff pauses in early July is a point of attention.
Geopolitical Tensions: Ongoing geopolitical conflicts and tensions could create volatility and impact global economic forecasts.
Moderated Earnings Growth: While positive, some earnings growth estimates for 2025 have been revised downwards, indicating a moderation from previous expectations.
Volatility: Despite recent calm, events like Fed minutes and inflation data can quickly reintroduce volatility.
Summary
While the current strong momentum and historical tendencies provide a basis for optimism about a "July rally," it is crucial to acknowledge the existing economic and geopolitical uncertainties. Investors are advised to stay informed and consider diversification given the potential for continued volatility.
Despite recent calm, events like Fed minutes and inflation data can quickly reintroduce volatility. New and extended tariffs, particularly impacting trade with key partners, introduce uncertainty that could affect corporate margins and global economic growth. The expiration of some tariff pauses in early July is a point of attention.
Appreciate if you could share your thoughts in the comment section whether you think July rally probabilities have increased as S&P 500 and NASDAQ creating new highs despite tariffs concerns.
@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.
Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.
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