To The Moon

The stock market rally had a powerful week as the U.S-China trade de-escalated and AI spending fears returned to optimism. All the major indexes cleared their 200-day lines decisively. Much of the advance came early in the week, but the indexes and leading stocks showed little desire to pause, let alone pullback.

Moody's Downgrades U.S. Sovereign Credit Rating

However, Moody's Investors Service downgraded the U.S. government credit rating from the top-level Aaa to Aa1, saying this "reflects the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns."

The announcement of a U.S. debt rating downgrade by Moody's on Saturday, 17 May 2025, after the regular market close on Friday, will likely impact how the market opens on Monday morning in the U.S. (and subsequently on Monday evening in Singapore).

So how can we look out for stocks that might still show potential buy points and how we can actually stay invested and profit from it.

S&P 500 and NASDAQ Entered Positive Growth Trend

The S&P 500 and Nasdaq have now entered a power trend, signifying an especially strong market rally. A power trend is not a buy signal by itself, but it is time to be especially invested and more willing to hold aggressive growth plays.

Potential Impact On $Invesco QQQ(QQQ)$ ETF And Broader Market

Here are the breakdown of the impact on QQQ (which tracks the Nasdaq-100 index) and the broader market.

Likely Immediate Reactions on Monday's Open (U.S. Time)

Knee-jerk Reaction: Many analysts anticipate an initial negative reaction, a "knee-jerk" sell-off, across the U.S. stock market, including the QQQ. This is due to the psychological impact of the downgrade and the increased uncertainty it creates.

Though we are seeing positive momentum denoted by RSI for QQQ in coming week based on daily period, we need to look at the balance of power, which reflects the strength of buying versus selling pressure, indicating whether the market is more influenced by bulls (buyers) or bears (sellers). This balance is crucial for understanding price movements and potential trend reversals. 

Positive BOP values suggest strong buying pressure, indicating a bullish sentiment, but it is showing a declining trend, which could mean that the bulls are tired and might suffer an exit if investors start to show more negativity.

Treasury Yields: U.S. Treasury yields are likely to climb. A lower credit rating generally suggests a higher risk of default, which can lead investors to demand a higher return (higher yields) for holding U.S. government bonds. This increase in yields can have a cascading effect on other borrowing costs.

Investor Caution: Investors may become more cautious, leading to increased volatility in the market.

Potential Impact on QQQ

Technology and Growth Stocks: The Nasdaq-100, which the QQQ tracks, is heavily weighted in technology and growth stocks. These sectors can be sensitive to broader economic uncertainty and changes in interest rates. Higher interest rates can make borrowing more expensive for these companies and potentially impact their growth prospects, leading to downward pressure on the QQQ.

While we are seeing very strong performance from technology and growth sectors on last Friday and over the week, this could potentially changed as there might be sell off or profit taking activities come Monday (19 May).

Overall Market Sentiment: The performance of QQQ will also be tied to the overall market sentiment. If the broader market experiences a significant downturn due to the downgrade, the QQQ will likely follow suit.

Long-Term Impact is Less Certain

It is worth noting that the U.S. has been downgraded by other major rating agencies before (S&P in 2011 and Fitch in 2023). The long-term impact of those downgrades on the stock market was not drastically negative. In fact, after previous downgrades, the S&P 500 saw significant gains in the following periods.

Market Focus: Analysts suggest that the market's focus might quickly shift back to other factors such as economic data, corporate earnings, and monetary policy.

U.S. Economic Strengths: Moody's, despite the downgrade, still acknowledges the "exceptional credit strengths" of the U.S. economy, including its size, resilience, dynamism, and the U.S. dollar's role as the global reserve currency.

Focus On Stocks Near Buy Points

$Broadcom(AVGO)$ and $Meta Platforms, Inc.(META)$ are setting near buy points.

AVGO are already showing positive momentum from the RSI for quite a while and with the buy points now getting closer, this could be a time to look at getting into this stock, or you might want to wait for a slight pullback, based on what I have used my indicator, we could be seeing AVGO attempting to new highs near $247 if investors stayed positive regardless of the U.S. debt rating.

META is also showing promising upside with the positive momentum growing well, and we are seeing the buy point indicator showing it reaching the band of the previous highs, this might be a time to consider looking at META, if there is any slight pullback, investors could look at entering for long-term investment.

Earnings season continues, with $Snowflake(SNOW)$ and Trip.com (TCOM) among the software, retail and China travel plays near buy points on tap.

For SNOW, we are seeing very good momentum from RSI and the buy points is also near, but I am expecting a pullback on Monday (19 May) which might set a potential price level for entry.

Summary

In summary, while the U.S. stock market, including the QQQ, is likely to experience a negative reaction when it opens on Monday morning (U.S. time) following the Moody's downgrade, the extent and duration of this impact are uncertain. The market's focus may soon return to other fundamental factors.

Appreciate if you could share your thoughts in the comment section whether you think there are still opportunities for us to get into as S&P 500 and NASDAQ have entered into a strong trending.

@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.