Market View From 1,000 Feet

Three Things Moving the Market

The MEME Trade Returns

Here we go again as GameStop (GME), AMC (AMC), and the rest of the MEME stocks are ripping higher this Monday morning.

It all started late last night as "Roaring Kitty" posted an image of their account holdings, including 120,000 June 21 $20 call contracts along with 5,000,000 shares of GameStop common stock.

Shares of GME are now trading 70% higher for the morning, resetting the cycle that we saw in the stock and the market on May 10.

In addition, Tupperware (TUP), Blackberry (BB), Beyond Meat (BYND), and Koss Corporation (KOSS) shares are participating in the MEME-driven rally this morning.

It's slightly notable that the "Halo Effect" we have been seeing on otherthis morning's meme price madness companies on the "MEME Army’s" Buy List has resulted in much smaller moves. This could signal that the market is growing tired of this obvious rigging of stock prices.

GameStop and several of these companies continue to struggle with their fundamental businesses since the pandemic.

The shares have become a regular trade for short sellers, which is one reason the Wall Street Bets Army and "Roaring Kitty" continue to squeeze shares higher.

There is a trend emerging in the GameStop saga – let's call it diminishing returns.

Each of these outbursts and rallies in GameStop has been met with lower initial spikes in the stock price and a faster decline from those lower highs.

The trend suggests that investors are less willing to follow the MEME trend as they’ve seen how things end in just a few weeks.

These rallies do little to improve the long-term stability and fundamental operations of these companies, which is why the short sellers continue to target them.

Maintain an eye on the chart of GME and other MEME stocks as their long-term trends have maintained their bearish outlook.

AMD Announces New Chip to Compete with Nvidia

AMD (AMD) is making headlines this morning as the chip company released its newest AI offering meant to compete directly with Nvidia (NVDA).

The company’s CEO, Lisa Su, announced the latest AI chip technology at the Computex trade show in Taipei.

The new MI 325X accelerator chip is set to be available in the fourth quarter of 2024 as both AMD and Nvidia battle for control of the AI chip market amid incredible demand and backlogs.

Currently, Nvidia holds a commanding 70-80% of the AI chip market.

Nvidia’s dominance is easily seen in the stock’s price performance on a relative strength basis. The chart below displays the performance of AMD stock relative to Nvidia’s price over the last year.

amd vs nvda 1 year realtive strength

AMD shares have been posting a technical turnaround over the last three months, with shares now moving back above their 50-day moving average.

The stock traded as low as $150 over the last month.

That $150 level was resistance in early 2024.

The fundamental bottom at $150 suggests that stocks are ready to rally back to their highs above $200, making the stock a technical "buy" at its current prices.

Fewer Stocks Moving the Market Higher is a Problem

Investors have spent the last three weeks crowding back into the large-cap stock universe.

Shares of the Nasdaq 100 (QQQ) completed a fast 7% correction in early April, trading as low as $413.

Despite the bearish activity, the ETF – arguably the most popular and important in the market – stayed above its 50-day moving average.

That trendline barely remains in a bull market trend that started in November 2023.

Several "tests" of this trendline have occurred, but the QQQ's 50-day remains slightly bullish to neutral.

Last week, QQQ dropped almost 5% just before Nvidia’s announcement of their newest chip coming to market.

This occurred after the large-cap technology index experienced serious selling in software companies.

Names like (CRM) and ServiceNow (NOW) fell 20% and 14%, respectively, pulling the Nasdaq 100 to its lows.

Once again, Nvidia came to the market’s rescue, allowing the technology index to post a nice Friday afternoon recovery, giving investors a potentially false sense of security as we headed into the weekend.

That's the problem. Nvidia keeps saving the market.

A look at the "breadth" of the Nasdaq 100 shows that fewer stocks are doing the work to move the Nasdaq 100 higher.

The chart below is an updated view of the percentage of companies in the Nasdaq 100 trading above their respective 50-day moving averages. That percentage is at some of the lowest readings seen for a market trading at or near its all-time highs.

spx stock chart

It's a familiar situation we saw at the end of 2021, just before the market fell into a long-term bear market.

Fewer stocks driving the market higher ends in one of two ways.

The strong stocks doing all the market’s work become tired and start to drop themselves, resulting in a wider correction.

Alternatively, the stocks that are part-timing it – right now that includes META (META), Microsoft (MSFT), Alphabet (GOOGL), and Amazon (AMZN) – start to attract buyers again, resulting in a strong and robust market.

Bottom Line

This morning’s buying is light and headline-driven, nothing more.

If there’s one stock to watch today – and for the rest of the week – it’s Nvidia

Nvidia countered AMD’s chip news this morning with a flurry of their own announcements, including "an array of Nvidia Blackwell architecture-powered systems featuring Grace CPUs, Nvidia networking, and infrastructure for enterprises to build AI factories and data centers to drive the next wave of generative AI breakthroughs."

As a result, the stock is trading 3% higher this morning and once again leading the Nasdaq 100 higher for the day.

Keep an eye on the $1,000 price level for Nvidia shares.

nvda stock chart

A break below this price will bring more sellers into the market to cash in on the stock’s recent 20% rally.

That “blink” from Nvidia stock would likely trigger the broader selling outcome highlighted above, pushing the Nasdaq 100 back below that critical 50-day moving average as we enter the first trading week of what is otherwise a seasonally weak month.

How to Trade this Outlook

Patience is hardest when the market appears to be unstoppable.

I'm resisting the urge to add bullish positions to my portfolio, knowing that the market is more likely to give a chance to buy stocks like Nvidia, Microsoft, and other “Magnificent Seven” names at lower prices.

I'm keeping an eye on the Transportation sector (iShares Transportation Average ETF (IYT)) closely.

Nobody is talking about this sector, and it is one of the most important when considering where the economy is headed, which ultimately drives where stock prices will go over the next 6-12 months.

We’ll talk more about the Transports later this afternoon.

About the Author

Chris Johnson (“CJ”), a seasoned equity and options analyst with nearly 30 years of experience, is celebrated for his quantitative expertise in quantifying investors’ sentiment to navigate Wall Street with a deeply rooted technical and contrarian trading style.

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