The BS rally

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.

4 Comments

  • that parabolic spike in nvda and others is coming back likely as fast as it went up

    Reply
    • -Island gap on the daily charts suggesting exuberance that could be filled to the downside when the party ends
      -Overbought via a plethora of momentum indicators on daily and weekly charts
      -Trading DOUBLE (!!!!!!) its 200 day SMA—recall my rule of anything over 10% is getting a bit overbought, and 20% over the 200 day SMAT is getting overbought to a point of a correction or consolidation.

      From every technical metric I follow, NVDA (and friends) are ripe for some sort of pullback.

      I like riding my bike in the citrus farming areas of Florida and apple country in Canada. A pattern is for farmers get out there and pick the fruit with good timing. They want it to ripen as long as possible, but they don’t want the fruit to fall off the tree, lest it be bruised, eaten by birds and bugs, and rot out.
      Perhaps NVDA is as ripe as possible and near falling off the tree? For those who bought the stock pre-rally, something to think about…

      Reply
  • Don’t be lured by this Tech bubble, reminiscent of the Y2K hype of 25 years ago… “There’s gold in them thar Hills”… gold fever, Chat GPT…Keith is absolutely right to have 30% cash, if not more. This is perhaps a casino. The house always wins. Invest in real businesses you can touch. feel ..that you can see with your own eyeballs every day. Microsoft is not a 1-trick pony, having revenue from many sectors. The Nasdaq, S&P increases is made up of a handful of Chat GPT stocks driving it above realistic breadth, no bearing on 95% of the stocks on those indices. Investing is not a blackjack or roulette wheel scenario.

    Reply

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