NVDA - In Praise of Contrarian Speculation | Benzinga
Source: Michael Ballanger 04/22/2024
Michael Ballanger of GGM Advisory Inc. shares his thoughts on the current state of the stock market and reviews AI stock Nvidia and two copper stocks.
Last October, I began posting a number of charts that would suggest that the average investor was rapidly approaching that point in the cycle where they usually throw in the towel and jettison that last remaining remnant of a hemorrhaging portfolio in what the behavioral psychologists have referred to as a "capitulation bottom."
While anything that comes from the CNBC "research department" cannot usually be trusted, their "Greed-Fear Indicator" is usually a halfway decent tool for discerning investor sentiment. I first found it in the Market Laboratory section of Barron's magazine and was granted the right to display it by the late Citigroup Strategist and founder Tobias Levkovitch. I have been using the indicator since the turn of the 1990s, and up until the Great Financial Bailout in 2008, it was a fairly useful market timing and risk management tool.
After working quite well at the late-October lows, it was sitting at for most of the latter part of February and most of March as the AI-driven tech stocks finally flattened out and gravity took hold. Here is a repeat of a rare Sunday email alert sent to subscribers on April 7:
"Last week was one of the few down weeks since the rally in stocks began in late October of last year. It marked the fourth week of the past twenty-four that was down in a period that has been one of the strongest performances for stocks in history."
The S&P 500 is up 21.37% for the period October 27, 2023 until April 5, 2024 while the NASDAQ is ahead by 22.91% for the same period.
Advances in these amplitudes are not only rare; they reek of extreme intervention and manipulation.
The Relative Strength Index sitting at 55 is no longer overbought bought looking back to December, one can see that it is now in full decline which indicates a serious loss of momentum.
Just before the March month-end, there was a bearish MACD crossover that constitutes a "sell signal" and while this has been unreliable unto itself since the rally began when coupled with declining RSI and the declining Money Flow Indicator ("MFI"), you get the sense that some serious erosion has suddenly taken place in the rally's resilience.
Note the above chart that has the S&P500 essentially "hugging" the 20-dma all the way up from the October 27th lows, with the only break being the fake-out during the first week of the year when tax-related issues triggered larger-than-normal outflows. Since then, only very brief skirmishes have occurred, with last week being the most serious.
Nvidia
Lastly, the market leader, Nvidia (NASDAQ: NVDA) — the company that launched artificial intelligence into the limelight for the new meme in technology stocks — has rolled over with a trendline break, a 20-dma failure, a bearish MACD crossover, and an MFI reversal. There might be rotation into other sectors but when the leaders begin to roll over, there is usually a sharp correction before new leadership leads stocks higher.
Hence, I see a correction on the near-term horizon.
Now, that said, despite all of these indicators that have worked admirably in prior times, they have not been working since October, with what appears to be an "invisible hand" rescuing stocks every time they look ready to cave in. I have a small put option position in the DIA June $375 puts at $3.50 in an attempt to recapture the drawdowns from January and April, where my attempts to top-pick the Dow were soundly thrashed. I do not trust any of the data being spewed out by any of the government departments in either the U.S. or Canada, but what I do trust is the bond market.
Note how the 10-year yield has ...