Are stocks really gunning for new ATHs?

The Nasdaq is within about 1,000 points (6%) away from a new ATH. The S&P 500 is within 300 (also 6%) pts away from its ATH. The Dow is 2,500(7%) pts away from its ATH. But the Russell 2000 small cap index is a larger 500 pts away (20%). Why do I mention this as a bear market rally believer? Good question!

I am now seeing MSM headlines that start to proclaim new ATHs are coming in the S&P later this year. And today I see this: I was right to be bullish in the 1990s and I am right again today! authored by a money manager who is said to be worth £6.3 Billion (but did he start with £10 Billion?).

He claims that the narrow leadership by Big Tech is actually bullish (except for the 490 or so S&P constituents trading under their 200-day MA, of course – see below). I’m afraid the rising tide of the indexes is not lifting all boats (see Persimmon chart from last week).

No, he is bullish because he has bought the Big Tech issues. He would be telling a different story if he held major positions in UK Housebuilders, for example. Or in Ark Innovation ETF (off by 68% from its ATH (although now climbing – we are long for Pro Shares).

But it is the definitive ‘…I am right now’ that stands out. In finance, when you believe you are 100% right – and put that into the MSM – the ghost of Joe Granville appears (or should): When everybody believes something is obviously right, it is obviously wrong.

And this headline from the Wall Street Journal: This bull market is just getting started, traders bet. Only a straight up rally that we are seeing brings out this kind of manic excitement. You never see these headlines near market lows when you need them!

No, bullish enthusiasm has reached Mark 11 on the scale of 0 to 10. And thus, the market will turn down at any time and sharply. And that’s definitive!

Remember, the market has been going straight up for weeks with nary a 2% pull-back. DSI bullish readings are off the scale as are all other sentiment indicators I watch.

So is my long-held belief that the rallies off the October lows last year are bear market rallies in danger of being proved wrong? If the pundits are right, any new ATHs will cancel out that thesis. Until then, we have a bear market rally.

So how likely is this new ATH scenario? Certainly, the immediate trend is up – no question. But as we know, bull markets always reverse when conditions look excellent to most traders for further gains.

The latest kick upstairs came from this week’s US CPI and PPI ‘soft’ data that inspired traders to believe the Fed would cease its rate hikes sooner than expected. But with crude oil on the move up again, how low can the inflation numbers go? Have we reached a low for US inflation data?

But are we looking at the wrong thing – the inflation numbers? Are other macro factors now taking control? Such as jobs, incomes, interest rates, money supply, crashing commercial real estate and so on?

For weeks now I have been expecting the inflation data to drop and to bottom out around here and then start to climb again. If so, that will knock Treasuries again very hard – and likely reverse the stock rally.

But if inflation does continue to fall, will that signify a recession/depression ahead? That would not be very bullish for shares!

This is the current position in the S&P that I drew two weeks ago:

It is heading for my target zone and is now at the Fib 76% retrace off the ATH. This target zone lies at the upper tramline. Failure to reach it could be taken as inherent weakness and lead to sharp declines.

We could possibly see a little more upside next week but with US earnings season for Q2 now getting under way, even a small disappointment could easily tip this expensive market over. However, the bar is being set pretty low and we should see many ‘beats’ – at least that seems to be consensus. We shall see.

NVIDIA leads the charge – but for how much longer?

Investors are paying most attention to the Magnificent Seven (Alphabet, Microsoft, Amazon, NVIDIA, Apple, Tesla, Intel) at the expense of just about all others. Here in graphical form is the concentration:

Our friend above believes this paints a bullish picture. I do not. When investors start to fall out of love with Big Tech (for example, when doubts arise that AI will not be the golden goose they hoped for), all shares will suffer.

Let’s take a look at the poster-child for this FOMO rush into Big Tech – NVIDIA

The shares have massively out-performed and made another ATH on Friday at $480 – a gain of 220% this year alone. This is an expression of Hope on a grand scale – revenues from the AI revolution have yet to meaningfully show up. The company seems to have a head start on making the AI chips, but with many competitors nipping at its heels, can it maintain its dominant position for much longer? And will the initial enthusiasm for AI fade soon?

And here is a close-up on the 4-hr chart showing the potential for Friday’s ATH at $480 being The Top:

The rally into Friday’s high has followed a classic five-wave ending pattern on a mom div. As it rose into its high, it broke above the upper tramline and fell back below it – a classic overshoot. If genuine, it will herald a move to test the lower tramline and a break there would increase substantially the odds the trend has changed.

I shall be on high alert for this possibility – and if it comes to pass next week, Big Tech should have made its wave 2 reversal and signal the start of wave 3 down.

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JON MY VIP TRADERS CLUB

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The dollar is getting hammered

Sentiment against the greenback has finally turned against the dollar big time. Here is my current roadmap

Wave B is a classic five-wave triangle that was verified when the ‘e’ wave was put in recently when it hit the upper tramline. Before that, the pattern was indistinct and I felt the dollar could go either way.

But it showed its hand and is now heading hard down in a C wave with five sub-waves to come. As I write, it has now broken below the A wave low under 100 and now could reverse up at any time for a decent counter-trend move.

We have taken excellent profits in our currency trades especially in our short USD/JPY campaign. I am looking to re-short on the current dollar bounce that should develop further.

It has been straight up in the euro for seven successive days – a rare streak.