2023 has been an incredibly strong year for stocks. The Nasdaq rallied 38% in the first six months for one of the best starts to a year in history.
This rally has been primarily led by an AI/tech theme that has been responsible for the bulk of these gains. That part of the rally is likely over, however… at least for now.
Every bull market has a “theme” with leading stocks that set the pace. In the late 90s that was the dot-com bubble. In the 2009-2020 bull market that was big tech like Facebook, Amazon, Netflix, Apple and Google (hence the FAANG stocks moniker). The 2020-2021 bull market was led by “work-from-home” stocks like Zoom, Teladoc and Peloton.
The 2023 bull market has been led by artificial intelligece. The leading stocks have been Meta, Microsoft, Dynatrace, MongoDB, Palantir, AMD, and the biggest leader of them all, Nvidia.
Over the last 4-6 weeks we have witnessed many of these leading names roll over and retrace beneath their 50-day moving average – a key level that generally supports top stocks through the move higher.
Despite the recent pullback in the market, Nvidia has held at its highs.
Wednesday after the close, Nvidia reported earnings. And the results were better than anyone could have expected.
Earnings $2.70 per share versus estimates of $2.08. Sales were $13.5 billion – 20% above expectations. And the company raised forward guidance (how much they expect to bring in next quarter) from $12 billion to $16 billion.
They also announced a $25 billion share buyback which should act to propel the stock price even further. Investors got everything they wanted and then some. NVDA stock shot up 10% after hours. The news was so good, the entire Nasdaq index shot up 1% on the news.
But Thursday, in the first few hours of trading, all of those gains were gone. The Nasdaq opened higher, and immediately began selling off. It fell 3% during the session. And NVDA was back where it closed the day before.
This, to me, is a clear signal that the 2023 rally in tech stocks is over. The high was likely made on July 19th, and I doubt we see that level again this year.
In a bear market, like we had in 2022, what you want to see is the market going UP on BAD news. This is the sign that the low is in, and buyers are coming back in.
We saw this on October 13, 2022. After a government inflation report revealed the worst numbers yet – far worse than expectations – the market gapped down and opened a full 3% lower than it was the day before. However, stocks immediately began to rally, and the index surged 5% that day. This was the signal that the low was in.
On the other hand, in a bull market, we want to watch for times when the market goes DOWN on GOOD news. This often signals a top. And I believe we saw that on Thursday.
Nvidia was the only stock that could have reversed this pullback. The earnings report was better than even the most optimistic investor had hoped. This should have absolutely put an end to the pullback and caused the market to rally higher. Instead, we saw the opposite.
So, what does this mean?
First of all, and let me be clear on this, I am NOT saying the market is about to crash. I simply believe the “easy money” stage is over.
I expect to see fairly choppy conditions for the next few weeks or months, and investors can no longer rely on the bull market to push everything higher.
I believe tech stocks have seen their highs for 2023. Those with large open gains in stocks like Meta, Amazon, Apple, Google, Nvidia and the like may consider selling to lock in those gains here.
There will still be stocks that go up, some of them by substantial amounts. But I believe this is now a more selective stock picker’s market.
Personally, I sold the index funds in my long-term account and moved to cash ( I also went short the Nasdaq via QID). As of yesterday, those index funds funds were up 37% year-to-date. That is a phenomenal year, and I do not want to risk giving those gains back.
To me, this is a low-risk decision. The worst-case scenario is that I am wrong or something material changes that propels stocks higher.
If this happens, and the Nasdaq makes new highs this year, I will simply buy those funds back. All I will have missed is a 6% move.
This rally has been primarily led by an AI/tech theme that has been responsible for the bulk of these gains. That part of the rally is likely over, however… at least for now.
Every bull market has a “theme” with leading stocks that set the pace. In the late 90s that was the dot-com bubble. In the 2009-2020 bull market that was big tech like Facebook, Amazon, Netflix, Apple and Google (hence the FAANG stocks moniker). The 2020-2021 bull market was led by “work-from-home” stocks like Zoom, Teladoc and Peloton.
The 2023 bull market has been led by artificial intelligece. The leading stocks have been Meta, Microsoft, Dynatrace, MongoDB, Palantir, AMD, and the biggest leader of them all, Nvidia.
Over the last 4-6 weeks we have witnessed many of these leading names roll over and retrace beneath their 50-day moving average – a key level that generally supports top stocks through the move higher.
Despite the recent pullback in the market, Nvidia has held at its highs.
Wednesday after the close, Nvidia reported earnings. And the results were better than anyone could have expected.
Earnings $2.70 per share versus estimates of $2.08. Sales were $13.5 billion – 20% above expectations. And the company raised forward guidance (how much they expect to bring in next quarter) from $12 billion to $16 billion.
They also announced a $25 billion share buyback which should act to propel the stock price even further. Investors got everything they wanted and then some. NVDA stock shot up 10% after hours. The news was so good, the entire Nasdaq index shot up 1% on the news.
But Thursday, in the first few hours of trading, all of those gains were gone. The Nasdaq opened higher, and immediately began selling off. It fell 3% during the session. And NVDA was back where it closed the day before.
This, to me, is a clear signal that the 2023 rally in tech stocks is over. The high was likely made on July 19th, and I doubt we see that level again this year.
In a bear market, like we had in 2022, what you want to see is the market going UP on BAD news. This is the sign that the low is in, and buyers are coming back in.
We saw this on October 13, 2022. After a government inflation report revealed the worst numbers yet – far worse than expectations – the market gapped down and opened a full 3% lower than it was the day before. However, stocks immediately began to rally, and the index surged 5% that day. This was the signal that the low was in.
On the other hand, in a bull market, we want to watch for times when the market goes DOWN on GOOD news. This often signals a top. And I believe we saw that on Thursday.
Nvidia was the only stock that could have reversed this pullback. The earnings report was better than even the most optimistic investor had hoped. This should have absolutely put an end to the pullback and caused the market to rally higher. Instead, we saw the opposite.
So, what does this mean?
First of all, and let me be clear on this, I am NOT saying the market is about to crash. I simply believe the “easy money” stage is over.
I expect to see fairly choppy conditions for the next few weeks or months, and investors can no longer rely on the bull market to push everything higher.
I believe tech stocks have seen their highs for 2023. Those with large open gains in stocks like Meta, Amazon, Apple, Google, Nvidia and the like may consider selling to lock in those gains here.
There will still be stocks that go up, some of them by substantial amounts. But I believe this is now a more selective stock picker’s market.
Personally, I sold the index funds in my long-term account and moved to cash ( I also went short the Nasdaq via QID). As of yesterday, those index funds funds were up 37% year-to-date. That is a phenomenal year, and I do not want to risk giving those gains back.
To me, this is a low-risk decision. The worst-case scenario is that I am wrong or something material changes that propels stocks higher.
If this happens, and the Nasdaq makes new highs this year, I will simply buy those funds back. All I will have missed is a 6% move.
themadking.com/artic...vidia-the-red-flags/
One of the most questionable parts of it, at least to me, is that Nvidia says it repurchased 2 million shares at an average price of $499 per share. The only POSSIBLE way they could have done this was is if they bought it all at the open the day after earnings in order to assist in providing exit liquidity.
Greasy stuff...