I believe that we are witnessing another one of those BS (baloney sandwich) moments on the markets. That is, we may be in one of those times where a hyped up market tempts us to jump in, only to fall hard when the excitement ends. BS baffles brains, as is said – and I believe this is a BS rally. So – today I offer more evidence behind my “Market BS Detector” ringing the bell. And some areas to consider if you don’t like buying into BS market hype.
Its retail that has pushed the AI story stocks, not smart money…
NVDA has rallied hard of late (yeah, I know, tell you something you didn’t know…). As I have noted in a recent blog, it is one of the “hateful 6” stocks that have literally pushed this market to look like a bull trend. Meanwhile, back at the ranch, nothing else is in rally mode. Data from May 31 (yesterday):
NYSE New Highs = 12
New Lows = 102
Nasdaq New Highs = 38
New Lows = 180
So, who is buying these hype-stocks?
“Net block order flow showing that institutions are NOT participating in the recent run-up in Nvidia.” – BearTraps.
In plain language, its dumb/retail money who love the AI play right now. The chart above shows you how, as the media prints more stories of the glory surrounding Artificial Intelligence (AI), these stocks move up. Of note: Smart money (institutions, commercial hedgers, etc.) don’t trade off of stories they read on Google. They trade systematically. Also of note: it was dumb money who drove prices up on such disastrous plays as cannibis, bitcoin, and psychedelic stocks. Even companies with legitimate stories like TSLA and drug makers like PFE were hyped, then dropped. And it was dumb money who took them down.
Another bit to ponder: I just published a video suggesting that the VIX is signaling complacency, which, for those unfamiliar with sentiment studies, is bearish. You might want to watch it.
Also, for those interested in the subject, I wrote a book called “Smart Money, Dumb Money” on using sentiment and contrarian indicators like the VIX . Contrarian indicators help you spot potential market turns ahead of the game. Here’s the Amazon link. Note that VIX signals are typically LEADING indicators….
Great minds think alike?
I just interviewed highly regarded Technical Analyst Greg Schnell – the interview will be published next week. Tons of stuff discussed, but some of it revolved around the low breadth on the markets (which I have harped on of late), along with some unique opportunities appearing as the market focuses on the hype-story of the day (AI). Greg spoke of starting to look at sectors like energy, certain commodities, and others. At ValueTrend, we are gingerly stepping into these areas, along with holding defensives…and cash
Its hard to be a contrarian. FOMO (Fear of Missing Out) can play havoc with your mind – especially as the illusion of a bull trend in tech-weighted indices continues. You may feel like you are missing the boat. If you don’t have a fair weighting of tech stocks, or tech weighted indices like the SPX & NAZDAQ in your portfolio, you are likely underperforming. Take a look at the recent declines in broad based NYSE comp, or the TSX for comparison. As such, you may be tempted to buy the hype and buy tech, while avoiding value, low beta, and certain commodities.
I can’t advise you. But I can say that ValueTrend is not taking the bait. We’re going to sit on the sidelines for now. Right or wrong, its our view.