NVDA - Time to go contrarian with short AI and long Hong Kong?

2023-06-05 06:10:17 ET

The stock market switched up its narrow breadth narrative to close out last week and those looking for a contrarian bet may want that trend to continue.

The S&P 500 ( SP500 ) ( SPY ) ( IVV ) ( VOO ) notched its third-straight winning week , but year to date the benchmark would be in the red without the rallies in megacaps, especially the post-earning surge in Nvidia ( NVDA ), which has accounted for about a third of the S&P's gains.

But on Friday the non-Big Tech indexes like the S&P Equal Weight ( RSP ) and the Russell 2000 ( IWM ) outperformed the Nasdaq 100 ( NDX ) ( NASDAQ: QQQ ) "by a wide margin," DataTrek noted.

"Is this the start of a market rotation back into non-Tech names and groups?" DataTrek asked. "Price return history back to 1999 certainly says it should be."

But they add that there would need to be another one to two weeks of follow-through to really recommend a pivot away from Big Tech, "which still has both a good story (gen AI) and strong price momentum."

Still, for those looking to make a move sooner, BofA notes that with tech and stocks already discounting a June Fed pause (fed funds futures odds are a 78% of no move), that leaves China stimulus as the "bullish June surprise."

China moved to provide some stimulus on Friday with incentives to buy EVs and is also looking at further measures to help the property sector.

Last week, Hong Kong's Hang Seng Index ( HSI ) ( HSXUF ) entered bear market territory, down more than 20% from its 52-week high in late January. The Hang Seng TECH Index ( KTEC ) is also in bear territory.

With an AI "baby bubble" a recent dominant theme, the "contrarian June trade is 'buy HSI, sell AI,'" BofA strategist Michael Hartnett wrote in his weekly "Flow Show" note.

Hedge with some beaten-up commodities, EM, resources and banks, he added.

More on AI and China

• Frontline: China Is Helping, But Will It Last?
• Will ChatGPT prevent a recession or is AI a baby bubble?
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