Yesterday was a bit of an odd day. If you told me that NVDA and bitcoin would each be down over -6.5% and yet the S&P would only be down modestly, I would have expressed major disbelief. But that is what happened.
In a reversal of recent trends, we had small caps rally +0.5% and NYSE advancers handily outpace decliners by over 2:1. Go figure. Perhaps this is the start of the long-awaited rotation out of tech, but I think it’s more related to end-of-quarter window dressing (Remember, Friday is the last trading day of the quarter).
As startling as yesterday’s pullback might have seemed, bear in mind that some of these stocks are up remarkably even after this pullback. As of now, NVDA is still up over 11% this month and 35% this quarter on a parabolic rise. That said, parabolic moves tend to end unpredictably and with outsize corrections. But even as they fall, they don’t necessarily go down as fast at they went up.
For example, a bit over a month ago we wrote how copper and utility stocks were zooming higher as part of AI-mania. The thought is that AI will consume immense amounts of electricity, which would benefit utilities and create excess demand for copper wiring. Both rose dramatically, with copper going parabolic. We understood the logic behind the moves, but not the rapid pace. Let’s see how that turned out:
6-Month Daily Candles, September COMEX Copper Futures (green/red candles), Utilities Select Sector SPDR (XLU, blue)
Source: interactive Brokers
Now let’s add NVDA to the comparison. Bottom line, its parabola – or more specifically, parabolas – have been far sharper and steeper.
6-Month Daily Candles, September COMEX Copper Futures (green/red candles), Utilities Select Sector SPDR (XLU, blue), NVDA (purple)
Source: interactive Brokers
Of course, NVDA is a profit generating machine, where utilities are constrained by regulation and commodities like copper don’t generate profits in and of themselves. So it is clear that we can and should expect a stock like that to outperform. But the point of the above chart is to show that even after a solid rally today that has thus far erased most of yesterday’s decline, there is still a long way to go before we can assure ourselves that the recent uptrend is not threatened. But with all the money riding on this stock into quarter’s end, it is hard to imagine that FOMO-powered portfolio managers will let it drop without a fight before a major marking period.
Join The Conversation
If you have a general question, it may already be covered in our FAQs. If you have an account-specific question or concern, please reach out to Client Services.
Leave a Reply
Disclosure: Interactive Brokers
The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IBKR to buy, sell or hold such investments. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Interactive Brokers, its affiliates, or its employees.
Disclosure: ETFs
Any discussion or mention of an ETF is not to be construed as recommendation, promotion or solicitation. All investors should review and consider associated investment risks, charges and expenses of the investment company or fund prior to investing. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
Disclosure: Digital Assets
Trading in digital assets, including cryptocurrencies, is especially risky and is only for individuals with a high risk tolerance and the financial ability to sustain losses. Eligibility to trade in digital asset products may vary based on jurisdiction.
Disclosure: Bitcoin Futures
TRADING IN BITCOIN FUTURES IS ESPECIALLY RISKY AND IS ONLY FOR CLIENTS WITH A HIGH RISK TOLERANCE AND THE FINANCIAL ABILITY TO SUSTAIN LOSSES. More information about the risk of trading Bitcoin products can be found on the IBKR website. If you're new to bitcoin, or futures in general, see Introduction to Bitcoin Futures.
Why small caps are ever referenced or even mentioned is beyond me? The hope that they will rise dramatically is about as relevant to economists predictions.