Mid-week market update: The poem “Casey at the Bat” may represent an apt analogy for today’s stock market (see Wikipedia entry if you’re unfamiliar with it). Technical warnings signs had been appearing. The S&P 500, the NASDAQ 100, and the Semiconductors Index, which is a bellwether for AI-related plays, had all weakened and violated their 10 dma. Even the Russell 2000 small cap index, which is largely unrelated to AI market factors, weakened below its 10 dma.
Much like the story in the poem, it was up to Casey (NVDIA), mighty Casey (NVIDIA) to pull the team out at the end.
Warnings everywhere
In addition to the violation of the 10 dma by major averages, there were plenty of other technical warnings. The technology sector had violated a rising trend line, though the relative uptrend remained intact. However, relative breadth (bottom two panels) had been deteriorating since early to mid-February.
As well, the NASDAQ had flashed a cluster of Hindenburg Omen warnings in late January and early February, which is a sign of an exhausted bull that’s vulnerable to a setback.
In addition, value began to bottom and turn up against growth across all market cap bands and internationally.
Mighty NVIDIA
It was up to NVIDIA, mighty NVIDIA, to save the day with its earnings report. The report was strong. The company beat both sales and EPS estimates and guided higher. The stock was up strongly after hours.
There may be joy in Mudville, as NVIDIA has saved the day. However, option positioning in the stock had been off-the-charts bullish. In the past, earnings beats after similar conditions had resolved with the overall market consolidating sideways.
As an antidote to the hyper-focus on the NVIDIA report, while CNBC’s coverage in the after hours was all NVIDIA, all the time, a switch over to Bloomberg TV saw stories on the possible government shutdown and the Haley/Trump contest in South Carolina. In short, there are other market moving stories in the world other than NVIDIA and we need a little time other than the illiquid after hours market to see how the market settles out.
As I write this, SPY is rallying and testing the 10 dma from below, we’ll have to see how the market trades tomorrow before making further judgment.
At the risk of being a conspiracy theorist, I would say that initially it got hammered and any stops at around 660 which was the low Feb 6 and then letting it go up. They want it to go up, or they would have smashed it. Of course they might want to get more FOMO fish, yeah fomosuckers to pile in overnight and smash it sometime tomorrow morning. We’ll see, it is interesting to watch the *cough* insanity.
At current earnings it would take over 30 years to recoup the share price if all of it were paid out…yeah I know earnings could keep going up, but we have that hound that haunts us , the large market cap…can NVDA multiply it’s revs by 5? Need a lot of buyers of their chips or a depreciating $, I’ll bet on the latter.
It amazes me how a two trillion dollar company has become the weather wane for the market of roughly 50 trillion.
Interest rates have moved up about 40 bps from recent lows, Fed is no hurry to cut rates (why should they be with full employment, fiscal stimulus and reasonably strong consumer and rising service inflation) and the FOMO among retail investors.
I am worried about this market but greed keeps me in for now.
There is the problem of when greed switches to fear it can be quite abrupt. That’s where portfolio balance matters and here is another thought.
If you lighten up your position it goes against your greed so it’s hard, but what’s the downside? You miss out on some of the higher gains.
What happens when you hold on to a losing position in spite of your fear? Well things could recover but they could keep going down for a long time and make your losses much worse. Buffet’s first rule..don’t lose money.
So when things are crazy like this take some money off the table, we don’t know where or when the top will be.
This market looks way too thin to me. Nvidia cannot support the entire market on its own. I’ve moved 90% to the sidelines and will await some sort of correction and a better interest rate environment. Just my opinion.