I Love Goooooold!
Last week we reviewed AAPL, GOOGL and MSFT and their topping patterns. This week those topping patterns started to play out, but the rest of the market was totally unaffected. Investors and traders have put all of their trust and apparently all their money in the semiconductors at this point, and with good reason.
NVDA goes up 10% per week to offset any negative drag AAPL, GOOGL or TSLA may have on the market. It may not be long before NVDA overtakes AAPL as the 2nd biggest company in the world. Could the dethroning of AAPL really happen soon? Currently NVDA has a market cap of $2.316 trillion and AAPL has a market cap of $2.609 trillion dollars. Two ways for the dethroning of AAPL are: if NVDA goes up 15.4% while AAPL remains at its current level, or if AAPL drops 13.3% while NVDA remains at its current. It will likely be a combination of the two scenarios if it does play out. If NVDA can overtake AAPL, that will be further confirmation of the power and dominance of the new age of AI and the shakeups that will come with it.
There is elation and exuberance in many charts and some traders are throwing risk management out of the window because it appears that certain stocks or assets only go up. We are seeing altcoins such as DOGEUSD, SHIBUSD, BCHUSD, FTMUSD move over 100% in just a few days. Big money is flowing into bitcoin (BTCUSD), gold (GLD), silver (SLV) and semiconductors (SMH). There are plenty of amazing bullish moves left, depending on the chart, but risk is certainly elevated when getting long at these nosebleed levels before a pullback. Pullbacks after parabolic runs are often sharp, steep, swift and scary.
The traders buying the BTCUSD all time high breakout on Tuesday after not buying any since October 20th, 2021, you are doing it wrong. There are times to buy all time high breakouts, but not during a face melting 160% move in 145 days. When looking to buy an all-time high breakout, you want the stock to have consolidated for some time before breaking out. There have been several great examples of that lately, most notably, NVDA, SMCI, and most recently gold.
NVDA consolidated in a channel at the highs for 227 days after an epic bull run. During this time there was strong resistance at the $500 level and strong support at the $400 level. Stocks can either correct in price or in time. When a stock trades sideways, it is correcting in time, and does not need to pullback before moving higher. For the last 60 days of NVDA’s consolidation, the range got very tight and pushed up against the resistance multiple times while making higher lows. This is the kind of set up that can lead to explosive moves higher at all-time highs, and it has.
SMCI had very similar price action to NVDA with the added catalyst of a strong gap and go out of consolidation. SMCI, like NVDA, had a massive run early in 2023 and then traded sideways for a few months. It started to make higher highs and higher lows toward the end of the consolidation and gapped out of the range. The earnings candle closed at a new all-time high, and above the prior 171 days of sideways price action. Not all set ups will follow through like SMCI, in fact, very few will, but it was about as picture perfect as one can get and followed through accordingly.
SMCI and NVDA have already made their big break out moves, so let’s talk about a chart that is just breaking out of its all-time highs after a massive consolidation, gold. There are a number of gold ETFs that give traders access to the fluctuations in the price of gold. Some of the most popular are GLD, IAU, and GLDM. GLD is the biggest with 54 billion dollars in assets under management and an expense ratio of 0.40%. It has a very robust options chain and trades around $200 per share. IAU has about half the AUM but also has nearly half the expense ratio of GLD at 0.25%. IAU trades at less per share, around $40.00, which can be important if you are buying in round lots. If options do not matter to you then GLDM is a great option with an expense ratio of 0.10%. It is a good vehicle for long term, buy and hold investing since it is less liquid than the previous two and does not have options as mentioned above.
Ok, back to the gold chart. We will be reviewing the IAU chart, but they are all very similar. IAU has been in a multi-year consolidation since August of 2020 when it reached its all-time high. Since that time, it has moved sideways in a large channel moving down 20% and up 25% on multiple occasions. IAU moved sideways for 1,302 days before breaking out this past Monday, February 4th. IAU should continue to move up in a vertical fashion, similar to how NVDA and SMCI moved. The old resistance at $39.50 should now act as new support. If the $39.50 support doesn’t hold, it could move as low as $37.50 before totally invalidating the very bullish set up it has currently. Basically, IAU should stay above its 200DSMA for quite a while and as long as it does, dips should be buyable.
