Stocks came under pressure twice this past week, first on Tuesday after a hot Consumer Price Index (CPI) report and then again on Friday on an even hotter Producer Price Index (PPI). Tuesday's CPI number came in at 0.3% on the headline number and 0.4% on the core number, both against expectations of 0.2%. The year-over-year rate came in at 3.1%, ahead of the 2.9% that was expected. PPI came in even hotter at 0.5% on the core number and 0.3% on the headline number vs. expectations of 0.1% for both.
This appears to quash the current narrative that the Fed will soon begin lowering rates rapidly as the inflation genie refuses to get back into the bottle. At the same time, the potential for stagflation, where higher inflation accompanies an economic slowdown as was seen during the 1970's, to set in increases.
One of two big stories during the week, aside from the hot inflation data, was the move in Bitcoin ($BTCUSD) as it decisively cleared the $50,000 level in fine style. We previously reported on two long entry triggers, the first being the undercut & rally (U&R) long entry at the prior $40,214.67 low that we reported on January 26th The second occurred when we sent a a report out on the Grayscale Bitcoin Trust (GBTC) on February 7th as it was showing tight VDU action along the 50-dma. GBTC, along with $BTCUSD eventually took off from there, leading to a sharp rally higher over the past two weeks.
Crypto-related stocks CleanSpark (CLSK), Iris Energy (IREN), and Marathon Digital Holdings (MARA), which we reported on over a week ago as they were posting pocket pivots through their 50-dmas have all become quite extended to the upside and subsequently are now pulling pack. We would watch for support at the 10-day moving average in each as they pullback and as the 10-day line rises rapidly to meet up with price.
The other big story this past week was the wild final run-up in hot AI Meme darling Super Micro Computer (SMCI) that culminated in a classic climax top and brutal, massive-volume reversal on Friday. SMCI has easily been the big stock of 2024, but the move had certainly reached ridiculous proportions as it was up 18 out of 20 days in a row by Thursday while also posting a gain of 123.45 points, the highest point move in the stock's history. These are classic O'Neil criteria for a climax top, and led to Friday's top.
The AI Meme Theme will be tested this Wednesday when another AI Meme darling, Nvidia (NVDA), is expected to report earnings after the close. The stock has been on a tear since clearing the $500 Century Mark in early January, but has certainly failed to keep up with its hot-to-trot cousin, SMCI. Wednesday's earnings report should provide some clarity on whether NVDA can can continue its sharp, consistent rally so far in 2024 as expectations and thereby sentiment for the space have reached bullish crescendos.
The market tone is always defined by its leadership, and the action of the leaders is always your first clue with respect to the potential for a general market correction. We note that Arista Networks (ANET), which we reported on as it posted pocket pivots on the way up, gapped down hard on Tuesday after reporting earnings on Monday after the close. The stock has been a strong leader since the market lows of late October 2023, but the current action hints at a potential top that could lead to a sustained correction at this stage. As well, ANET posted a short-sale entry trigger at the 20-dema on Friday which is actionable using the 20-day line as a covering guide.
One of the strongest performing stocks in 2024 has been DraftKings (DKNG), which Gil first discussed as a long entry in the VoSI VooDoo Report on January 14th based on his VPA analysis when it was trading below $34 at that time. DKNG reported earnings on Thursday after the close and came in with a 307% increase in earnings growth on EPS of 29 cents a share and a strong 44% increase in sales growth. The stock initially gapped down slightly on news that it was also buying lottery app Jackpocket for $750 million. That initial sell-off on Friday morning found support near the 20-dema and DKNG went on to post a massive-volume continuation pocket pivot at the line. The stock still looks fine on the chart, but only sharp pullbacks to the 20-dema such as we saw on Friday would offer lower-risk entries from here.
Volume Price Analysis, or VPA, can be useful in discerning potential lows in certain thematic areas of the market. In his VoSI VooDoo Report of January 21st Gil also discussed Lyft (LYFT), Robinhood Markets (HOOD), and Marathon Digital Holdings (MARA) as VPA long candidates as they were hanging along their lows in late January. Since then, all three stocks have shot higher, with LYFT and HOOD posting BGUs on Wednesday after reporting earnings on Tuesday after the close and MARA moving higher with the overall crypto space as $BTCUSD cleared the $50,000 level late last week. Gil is looking to continue posting these types of VPA-based Ugly Duckling ideas and analysis in the VooDoo Report going forward.
In that same VooDoo report of January 21st, Gil also contrasted the VA long entries in LYFT, HOOD, and MARA with a much more bullish-looking chart in McDonald's (MCD) which was posting a buyable gap-up (BGU) breakout at the time. A very bullish and orthodox move that the breakout buying crowd loves to feed on, but note how the three Ugly Duckling VPA longs, LYFT, HOOD, and MARA have all shot higher while MCD's BGU breakout has failed miserably. MCD is now rallying into the 50-dma where it may potentially offer a short-sale entry using the 50-day line as a covering guide.
The Market Direction Model (MDM) remains on a BUY signal.