Rotate Back Into Memory and Hardware? Or Add the New Leaders in Software and Reflation?
Wednesday Update | 7/29/2026. The previous AI leaders remain broken while the rotation broadens. Our Focus List following this week's Fed meeting.
REGIME
Market Regime: DEFENSIVE. The Book: 100% cash.
What changes this? QQQ price action above a rising 5-day moving average or a reclaim of the 10/20-day avg with a rising 10-day. All eyes on the Fed today. Nothing about this week has changed the defensive read.
This week AI Memory & Semis continued to sell off on news China’s cheaper LLM models are taking away market share from US providers. The Tech sector as a whole has suffered, but Software appears to be setting up with great relative strength — scroll down to see names with levels we’re watching for entry.
Our updated focus list today is dominated by names in Software, Healthcare, & Industrials. Are these the next AI market leaders?
If you’re fully invested in growth stocks, you’re not alone.
A lot of traders I’ve spoken with have been blindsided by this AI correction.
My focus isn’t on predicting bottoms. It’s watching the overall health of the market, with QQQ as my barometer for growth. When QQQ breaks down and can’t reclaim its 20-day moving average, that’s usually a sign the market wants to go lower. That’s why The Book sits in 100% cash.
I’d use sharp rallies to reduce exposure to growth stocks. We want to wait until we get a follow through day on QQQ before adding back (at least a 1-1.5% rally on higher volume than the prior session, typically day 4 or later of a rally attempt).
One of my favorite lines to remember: become obsessed with your stops, not your stocks.
THE BOOK
The RTL Model Portfolio launches with this issue: 100% cash.
From here forward this section tracks a model portfolio that only takes trades at levels published in these letters, per the letter’s own rules. Every entry and exit gets recorded when it happens and graded in print.
It starts flat. In this tape, that is the position.
We don’t mind not catching the exact bottom. We prefer to stay in cash.
MID-WEEK READ
Sunday’s letter said expect a rip, and don’t trust it. That is exactly what printed. Monday gapped up and got sold. Tuesday the previous leaders got taken apart: $MU down 8.9%, $STX down 8.5%, $DELL down 8.2%, $AMD down 8.1%, $NBIS down 9.7%, $BE down 11.3%.
There is a debate going on about whether semiconductors have peaked or not. We don’t care to debate as nobody can tell the future. We are only focused on reacting to price action, and right now price is headed south, so we are not participating.
The massive derisking in tech is actually encouraging. The sharper down we go, the sharper the rally will be, and that lets us momentum folks take advantage of sharp rallies in leading stocks.
Under the hood this is a different market. $SPY has held up remarkably well and refuses to break down, closing 740.86 Tuesday while $QQQ lost 1.0%. You can see the broader market strength and rotation via the breakout in $RSP.
The rotation beneficiaries have been AI software, energy, financials, real estate, homebuilders and healthcare as the AI bottleneck trade continues to falter. Many of these rate-sensitive names are just coming out of stage 1 bases, and they are low PE type names, not your typical momentum plays. We view this as bullish for the overall market and are watching for signs it can be sustained.
One daily routine that has helped my trading tremendously: checking the top performing industry groups on the IBD Industry Groups report. The list updates daily and it is an easy way to spot new emerging themes and leaders early.
The $QQQ 20-day, published Sunday at 708, has rolled down to 703 and sits 27 points overhead. Same first domino. The repair sequence has not started.
LIST DELTA
Sunday’s five, graded.
Killed.
HUT never triggered and broke the 102 shelf Tuesday, trading as low as 91.60 before closing 101.14. Off the list until it rebuilds. Reports 8/4.
MU closed 820.53, well below the 858.90 line in the sand. That is the market’s current answer on memory.
HPE lost the 46 shelf, traded 43.30, closed 45.59.
DELL, its bigger twin, closed 392.10, far below the 417 line. Both dead.
No entry.
ANET never gave the 174-172 hold. Tuesday it traded down to 159.27 and closed at 169.71, back above the 50-day (164.9). It reports Tuesday 8/4. Nothing to do before the print.
NVDA never printed the 214.40 trigger.
CIFR never flagged, it just kept pulling back. Reports 8/4.
Worked.
LLY held the 10-day and turned Monday, exactly the published zone, and closed Tuesday at 1220.66. It ran through the 1207 aggressive level, but that level was published as post-print only. Reports Wednesday 8/5. I don’t chase into a report.
STLD held its 50-day reclaim and went, closing 259.74 after a 3.8% Tuesday, through Friday’s 247.68 high.
KRE is still live at 76.79, above the 10-day, trigger untouched at 78.10.
The Updated Focus List
⭐ LLY / LLYX · healthcare · 2.3% off highs · reports Wed 8/5
The liquid leader in the group leading the rotation. Sunday’s zone worked: it held the 10-day Monday and closed Tuesday through the 1207 level ahead of the print. I don’t chase into a report, and post-print this goes straight back to the top of the list. For 2x leverage given the low ATR, I use LLYX.
📍 Ideal Buy Zone: post-print, the 10-day (~1,189) holds and turns
🚀 Aggressive: >1,207 on volume, post-print only
➕ Add-on: tight day above the range break
🛑 Stop Zone: ~1,175, below the 20-day. Character changed
⭐ WAB · transportation · at all-time highs · no earnings until 10/28
An industrial leader in the transportation group. Transportation was incredibly strong, took a few months off to base, and now the group looks ready to go once again. It briefly became the #1 industry group on IBD on Monday. Three-month base resolving now, 2.6% ADR institutional grinder.
📍 Ideal Buy Zone: 299-301 retest holds
🚀 Aggressive: >306.20 on volume
🛑 Stop Zone: ~294.25
⭐ MAN · staffing · 1.9% off highs · reports 10/15
Staffing is a top industry group on IBD as the group’s profitability benefits from integrating AI. The leading name in the group stunned investors with a massive earnings beat. AI automation cut their time to fill candidate slots by 67%, widening margins dramatically. The earnings gap held, then a textbook 10-day undercut and reclaim. Stretched here; the pullback is the entry.
📍 Ideal Buy Zone: first 10-day touch (~51-53)
🚀 Aggressive: >56.50 on volume
🛑 Stop Zone: ~48.85
⭐ SNOW · cloud data · 5% off highs · reports 8/26
Best chart in software and the group’s only open runway. Riding the 10-day beneath the top of a six-week range. Tuesday it flushed to 253.59 intraday and closed 270.36.
📍 Ideal Buy Zone: 268-269 holds
🚀 Aggressive: >279.60 on volume
➕ Add-on: >285 (ATH)
🛑 Stop Zone: ~263.90
⭐ OOMA · telecom · at all-time highs · reports 8/25
The quiet one. The RS line hit new all-time highs before price, every MA rising in order, nobody covering it. An RS line at highs ahead of price typically precedes an ATH in the stock. Thinly traded so size accordingly.
📍 Ideal Buy Zone: 10-day pullback (~20.60)
🚀 Aggressive: >22.25 on volume
🛑 Stop Zone: ~20.90 (breakout day low)
⭐NTAP · data infrastructure · 9.5% off highs · reports 9/2
Right structure, one missing ingredient. It has held its pivot for two days on 4% relative volume. The trade doesn’t exist until demand shows up, which is exactly what makes the trigger clean.
📍 Ideal Buy Zone: 168-170 retest holds
🚀 Aggressive: >175.70 only on ≥ 20% RVOL
🛑 Stop Zone: ~163.35
The Groups Behind the List
Software (SNOW, NET, DDOG, PANW). An interesting group to be watching, and a potentially new group of leaders forming. Many investors describe software as one group, which isn’t the case. Cloud software and data management is SNOW and $DDOG. The edge network and security layer is NET and PANW. IGV closed green Tuesday while QQ fell 1%.
NET continues to be on my radar as the next potential bottleneck beneficiary with their focus on the inference market. It reports 8/6. Cloudflare handles close to 20% of web traffic. When you visit a website it loads incredibly fast because it’s pulled from one of their nearby servers. You’re going to hear quite a bit about inference in the coming months as we head into 2027, and NET is the clear leader there. I look at NET a bit like what BE was for data centers last year. Beth Kindig has been watching NET for years.
DDOG previously led this group and looks ready to get going again. It also reports 8/6.
We have seen an inverse correlation between AI software and AI memory/hardware. It’ll be interesting to see if both groups can lead at the same time.
Retail electronics ($BBY). Another top IBD group showing relative strength as a broadening beneficiary. Names like $BBY are breaking out as investors hide in safer low PE names. Stage 1 breakout.
Telecom ($AAPL, $OOMA). $AAPL leads the group. Institutions treat the stock as an alternative to treasuries or a proxy for cash, a true safe haven stock, if that exists. It does carry a better credit rating than the United States government, so I get it. Is the whole group just benefiting from temporary inflows, or does this rally have legs? With lesser known names like $OOMA breaking out this week, it has my attention. $RNG also printed a good earnings reaction with follow-through, in a weak market.
Semiconductors ($SOXL). Within AI hardware our focus moves to the networking suppliers like $ANET, with a 28% return on equity, and $NTAP at 94% ROE. I would expect the memory names to benefit from sharp rallies on earnings since they are solidly oversold.
With $QQQ still below its 50-day I would not expect a sustained rally. Institutions continue to sell. Nothing to do but watch.
The one exception: we may take a quick $SOXL mean reversion trade if it tests the 200-day, now at 97.50 (Tuesday’s low was 101.53), or reclaims the 50-day in short order. Quick trade, not a position. We went to 100% cash in June after being heavily invested in this group.
Also on watch: Financials ($WFC), insurance ($OSCR), regional banks ($KRE). Healthcare and biotech ($IBB, $XBI, $XLV, $DVA, $LLY). Metals ($STLD). The April AI leaders ($SNDK, $MU, $HUT, $BE, $NBIS, $AMD, $STX) are breakdowns we watch, not dips we buy.
Reporting soon from the watch groups:
$AMD 8/4
$DVA 8/4
$SNDK 8/5
$NBIS 8/6
$OSCR 8/6
NEXT
1 · FOMC decision at 2pm today, $AAPL reports Thursday. A leader that gaps up on its print and holds the gain is telling you about the next leg. The prints that hold are the next list.
2 · $SOXL, only on the conditions above. The 200-day test at 97.50 or a fast 50-day reclaim. If neither prints, no trade.
3 · The $QQQ 20-day, now 703. Step one of the repair sequence. Until it starts, the regime stays DEFENSIVE and the list is for watching, not buying.
See you Sunday.
— Nick
Educational content only. Nothing in Ride The Leaders™ constitutes investment advice or a recommendation to buy or sell any security. Levels (”ideal buy zone,” “stop zone”) are analytical reference points describing each chart, not instructions, provided without regard to any individual’s circumstances. The Book section tracks a model portfolio, not a brokerage account. The author may hold positions in securities discussed, as well as other positions not mentioned, and may enter or exit them at any time. Trading involves substantial risk of loss. Past performance does not guarantee future results. Always do your own research. © Ride The Leaders™ · ridetheleaders.com