As I start my normal "Walk Down Main Street" on Monday night the three things that this market is going to be focused on couldn't be any clearer.
First, of course, is A.I.
In case you missed it, NVIDIA released their introduced its DGX GH200 AI Supercomputer. According to NVIDIA, this is a "New Class of AI Supercomputer Connects 256 Grace Hopper Superchips Into Massive, 1-Exaflop, 144TB GPU for Giant Models Powering Generative AI, Recommender Systems, Data Processing."
Let's be honest unless you designed the computer that was mostly gibberish... there was one thing that you and the rest of the market heard - A.I, causing a buying frenzy that has the stock trading more than 17% higher for the year when you include the 4% increase in shares before the market even opened on today.
To this, I say, "STOP THE MADNESS".
If you are one of the investors or traders that have NVIDIA in your portfolio this morning then be thankful and enjoy the ride.
If you don't, pull your finger off that "buy button" for just a moment and keep reading - there are a few things you need to consider first.
I always talk about the market being driven by math, and you're getting a lesson right now with NVIDIA and there are a few more to come.
In the name of time, I'll be brief. The markets are driven by cash, right?
Go one step further and you can determine that the cash in the market is rather finite. I have to remember this whenever I see a stock "go" like NVIDIA.
That's because the "finite" cash in the market just can't keep pushing this stock at breakneck speeds.
This is why you take your finger off the "buy button" right now.
According to the chart below, the stock has now exceeded what I refer to as a "Crescendo Top" as these three criteria were met at the same time:
- The stock has broken above its top Bollinger Band
- The stock has seen an unusual spike in its daily volume
- The stock is overbought according to its RSI (I use a one-month RSI)
The combination of these three criteria signals that the stock has likely tapped its "finite" cash from the market and anything that comes in over the next week or two is likely to be the last push before a natural price correction occurs.
The bottom line here is that the patient investors will get an opportunity to add NVIDIA shares to their portfolio at prices lower than their current $400+ price tag. I've seen this rodeo before... take your finger off that Buy Button.
Now Let's look at the Rest of The Market
Outside of the A.I. Surge, the market heads into this week with some barriers still overhead.
Debt Ceiling
The Debt Ceiling negotiations yielded some results late last week as a tentative deal has been met between the White House and House leadership. The tough part now, getting it through Congress and to the President's desk for signature.
Let's be honest, we're all tired of this theater and drama and I think that we also know the odds of this not happening are slim.
The real risk here is the potential damage down the road as all three credit rating agencies have made it clear that they are concerned about the way that this has been handled politically.
My expectations are that we will see a deal signed and that will allow the market to focus on the next "hot button..."
Interest Rates
That's right, they're back. The talking heads of the Fed were busy last week opining on the outlook for the economy and interest rates.
A funny thing happened over the last week, the market started pricing in a much higher probability that the FOMC will increase interest rates at their next meeting on June 14th.
The bottom line here is that the Fed is telling us what we already know, they're not done with their fight against interest rates.
The market's expectations are clearly more optimistic than the Fed's on this subject, which may come back to haunt stocks if we continue to see the
Earnings Season Continues
Last week left a lot to be desired from the group as the majority of retailers failed to hit their earnings marks.
This, of course, is the result of a not-so-subtle slowdown in the outlook of many companies as it feels like the consumers are slowing their discretionary spending.
For the week, one of the most interesting reports came from Best Buy co inc (BBY). The company did beat their earnings per share (EPS) expectations but did something more important for investors which was to reaffirm their guidance for 2024, indicating that they believe a bottom will be placed in demand for their electronics in 2023.
The stock got a bitt of a bounce to its bearishly trending 50-day moving average just below $74. Today, the stock is slipping back below this critical trendline, suggesting that we're likely to see lower prices over the next 4-6 weeks.
From my perspective, the bearish argument remains compelling with a high likelihood that BBY shares revisit $65 before their next quarterly earnings report in August.
We're still looking down the line at a healthy dose of earnings announcements from the Retail sector this week.
Looking more broadly, the SPDR S&P Retail ETF (XRT) is showing signs of a struggling earnings season as the XRT shares are now breaking below their December 2022 lows. This sector remains on my shortlist with a target price of $50.
Finally, a Look at Energy
Another sector that has the eyes of traders and investors alike is Energy and its subsectors.
Take this with a grain of salt, but crude oil prices are dropping on Tuesday over the Debt Ceiling jitters. I serve up the salt with that news because the market is also bracing itself for the next OPEC+ meeting in the coming week.
While oil prices may get another round of buying pressure from the OPEC+ meeting, the longer-term outlook remains tepid for the sector.
Recessionary pressures continue to grow around the world. Those pressure results in some forecasts for lower demand for oil and energy, that's just how it works, right?
In addition to a potential slowdown in energy demand, I continue to point out that the energy trade became one of the most crowded trades on Wall Street in 2022 as it was almost the only sector that was generating returns.
Crowded stocks and sectors always worry me when a negative technical trend emerges, which is the case in the energy trade for the time being.
The investors out there may want to take profits on those 2022 energy gains while the investor/traders like me may want to start buying into the bearish trend with longer-term (August or September) put options
The post A.I., Oil, and Interest Rates - Oh My appeared first on Penny Hawk.
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.