Market Milestones: Precipitous Rising

NVDA, silver, gold, Ethereum, the SPY, the QQQ and inflation fears are all on a precipitous rise as of late. How do all these narratives fit into one tightly formed theses about what the future will bring? I have no idea, but soon AI will be able to tell us thanks to NVDA. NVDA was the big story on Thursday and the only offshoot of green in a sea of red that was the market. With a 10 to 1 stock split and blow out earnings, NVDA blasted through the $1000.00 level and hit a market cap of $2.6 trillion. This firmly cements NVDA as the 3rd largest company in the world. To further put into perspective NVDAs meteoric rise, it was just a 100-billion-dollar company just 5 years ago, and now its larger than AMZN and TSLA combined! What makes this dramatic rise over the last 1.5 years so remarkable is that despite a rally of 885%, their forward PE is still sitting around 30.

While NVDA caused the markets to rejoice and be bullish it did not last long. Thursday quickly turned into a bearish engulfing candle on SPY and QQQ as presumably everyone sold all of their positions, and possessions to buy more NVDA shares. NVDA still could push higher into $1,100.00 and $1,200.00, but a little bit of rest would be ideal. It was able to buck the trend of the market on Thursday, but if we see further selling in equities, NVDA would most likely succumb and drop lower. At this point, any pullback into the long-term moving averages on NVDA looks like a buyable event for long term trades.

At the beginning of May we discussed the old adage “sell in May and go away.” We looked at the seasonal strength in May as well as the seasonal weakness in June through September. As May draws to a close with a huge bullish candle on the monthly chart, it looks like this seasonality is playing out once again. We shared this chart and suggested that it was possible that May’s bullish price action was part of a larger correction that could lead the SPY back to its previous all-time high around $480. Thursday’s candle gives some credence to that theory. This type of correction is called an “expanded flat” and is one of the meanest corrections out there. It lets all the bulls get really nice and comfortable in their new highs and their bullish trend and then—bam!—slaps  them in the face with a C wave!

Thursday’s candle was a bearish engulfing candle that engulfed the last six days of price action. This exact type of candle started the April sell off on 4/4/24 and last year’s larger pullback on 7/27/23. However, the market went immediately higher after the bearish engulfing candles on 11/9/23 and 12/20/23, so it’s not at all a sure thing for the bears. The next couple of days and weeks will be important in telling us if this is part of a larger correction, or if it’s simply a pause in a larger uptrend. The high of Thursdays candle should mark the high of the market if a larger correction is upon us. If it does not, keep trailing stops and wait for the next decisive candle to appear to give us more information.

Whatever happens, there will be great opportunities to own great companies at great prices. Dips and pullbacks should be welcomed by bulls as they provide opportunities for future wealth to be created.