Artificial Intelligence. Strong Buy.
This is the weekly market summary for the week ending February 23rd, 2024.
Last week I wrote about the AI Supernova. That rally peaked on Thursday and then it exploded lower ahead of Nvidia earnings last night (Wednesday). Somewhere along the line, AI Mania jumped the shark from Nvidia and a few other Tech stocks to a global risk on rally.
Featuring a new Global Dow all time high.
How could this be possible?
As we all know, social mood - greed and fear - are contagious. So it is that global markets have now caught the "AI" mania bug. Let's be honest, at this late juncture in the cycle ANY excuse could be used for a melt-up rally. In 2024, global central banks were supposed to begin coordinated easing, so markets were already melting up ahead of that event. But unfortunately, inflation remained stubbornly high, so pundits looked around and called it an "AI rally" instead. If there wasn't already an excuse for rampant speculation, one would have to be invented. In this seminal week, we have Japanese markets reaching for a new all time high after 34 years of bear market. Indian markets going late stage parabolic. And European stocks at a new all time high. All because of one massively over-crowded sub-sector of Technology. Global investors are using artificial intelligence as a pretense for a hyperbolic risk ON rally ahead of global recession when central banks are still contending with inflation. Don't get me wrong, I'm not against this entire concept. I'm just taking it all in, like a new ride at Disneyland.
Therefore, to be fair and balanced I am outsourcing the bull case to someone who has a better imagination. Here is what a TRUE bull pundit has to say after last week's AI near-meltdown.
"The AI trade is back in full force after Nvidia's (NVDA) big earnings beat, defying fears that euphoria over the technology may have reached its peak."
"All of these moves higher come just a week after a hotter-than-expected inflation report spawned a mini-market sell-off and as Federal Reserve officials continue to indicate interest rate cuts are likely to come later than many hoped"
"FOMO operates on its own timetable, stocks can get more expensive, and the Momentum ends when it ends, which is often without warning"
Sometimes when I read the bullish argument, I think I must be bullish too.
Unfortunately, following last week's "mini-crash", most stocks did not make it back to last week's highs:
This morning I contended that regional banks would head in the opposite direction of Nvidia, and yes they ended down on the day and are down on the week as of Thursday close:
Even within the Tech sector, most Tech stocks peaked last Monday pre-CPI. Today was the THIRD lower high for Momentum Tech since CPI last Tuesday. And as we see, volatility during this past week is the highest since the early days of the 2022 bear market.
The chart above shows equal weighted momentum Tech stocks, whereas this chart below shows the market cap weighted momentum stocks.
Which are record overbought today. Including the pandemic.
And, even within the AI sector there are now divergences, as SMCI round-tripped back to last Thursday's high today. That big red candle was last Friday.
So there you have it. The bull case and the bear case are now the same:
FOMO continues until it explodes without warning.
And that's how you get to Artificial Intelligence. Strong Buy.
