As the NASDAQ Composite Index continues its parabolic ways, the NASDAQ 100 Index comes very close to serving as a big-stock AI meme stock index. 51% of the NASDAQ 100 is made up of seven big-stock techs, Apple (AAPL), Amazon.com (AMZN), Alphabet (GOOG), Microsoft (MSFT), Nvidia (NVDA), and Tesla (TSLA). All seven of these names have an Artificial Intelligence meme angle, and, as we joked earlier this week, they say “AI” and investors say “Buy, buy, buy!”
The NASDAQ 100 Index rallied to a peak of 15284.65 on Friday, just exceeding the 15265.42 peak of March 2022, and stalled to close Friday at 15083.92. On the weekly chart below this is expressed by a large double-top formation vs. the March 2022 peak. That said, the index is also approaching its November 2021 highs that were logged just before the 2022 bear market took hold. Whether it can get that far likely depends on the sustainability of the current AI meme-theme stampede which is arguably frothy and overbought, but we know from experience that overbought can always get more overbought, even to levels that seem absurdly irrational.
The rush into AI meme stocks has aroused individual investors from their bearish hibernation as the American Association of Individual Investors (AAII) sentiment surveys shows one of the largest percentage increases in bullish sentiment among individual investors in history. The percentage of bulls leaped from 22.9% to 45.2% since the latter part of May as bullish sentiment spikes.
Meanwhile, the broader market as represented by the 3700-stock strong NYSE Composite Index remains within a large consolidation extending back to November 2022. This past week both the CPI and PPI data came in relatively benign, but in Wednesday's Fed policy announcement and ensuing press conference Fed Chairman Jay Powell stated that core inflation remains sticky, and has not responded to the Fed's interest rate increases. The Fed's preferred measure of inflation, the PCE, has come off peak the slowest. He said he sees no rate cuts a couple of years out. In consequence, the Fed voted for a hawkish skip and left rates unchanged while indicating that at least two more rate hikes were likely in 2023, taking the Fed Funds Rate up to 5.75%. Stocks responded by initially selling off hard then turning back to the upside late on Wednesday and continuing higher on Thursday before reversing Friday on heavy quadruple-witching options expiration volume.
Much of the AI meme-theme is expressed by massive gap-up moves in stocks after they report earnings and invoke the AI meme during their earnings conference calls or in their press releases. Cloud software name MongoDB (MDB) and semiconductor Marvell Technology (MRVL) are two examples, but note that following massive-volume buyable gap-up moves with intraday lows of 370.00 and 58.58, respectively, which would serve as selling guides, neither stock has been able to generate further upside momentum. The tight action is constructive, but historically, stocks that take more than six days to move meaningfully higher after a BGU in rising markets are prone to failure. So far, however, both stocks remain above their BGU intraday lows so are theoretically actionable using those lows as tight selling guides.
Two weeks ago Gil discussed small-cap AI-related name CXApp (CXAI) as it was holding tight along its 20-dema. The following Monday the stock leapt over 25% on an intraday basis from the $10 level, making for a nice day-trade. Since then the stock has continued to move tight sideways along the 20-dema as volume continues to dry up sharply to levels less than 10% of average volume. If AI meme stock mania is able to continue then CXAI may find impetus to break out of this tight formation.
The U.S. Dollar ($USD) has moved sharply lower this past week as it heads for the neckline of a large head and shoulders formation. This has likely been beneficial for stocks but note that $USD fell sharply after the early March regional banking crisis hit the markets. And as the Fed assures investors that more rate hikes are coming, $USD continues to drop.
This creates an odd cross-current, but precious metals seem to believe the Fed as gold continues to bounce off its current support zone in the 1920-1950 level. On Thursday Gold Futures ($GOLD) got as low at 1936.10 before rallying to close positive, ending the week at 1971.20 per ounce. The yellow metal remains within a very large cup-with-handle type of formation as it continues to hold near-term support.
The Sprott Physical Gold Trust (PHYS) posted an undercut & rally (U&R) long entry on Thursday but ran into resistance at its 20-dema. For now, the PHYS is holding along near-term price support in a manner similar to gold itself.
Bitcoin ($BTCUSD) rallied in the latter half of the week on news that Blackrock (BLK) plans to launch a spot Bitcoin ETF. That triggered a nice move in the big-crypto currency, but it remains in a well-defined downtrend channel with 50-day moving average resistance looming above at the top of the trend channel. Blackrock is the largest hedge fund so also has political pull. It therefore stands the greatest chance of a successfully approved launch. Also, US lawmakers filed the 'SEC Stabilization Act' to have Gary Gensler removed from the SEC. If approved, this would bode well for holders of GBTC which still trades at a steep discount.
The move in $BTCUSD triggered a pocket pivot in Bitcoin miner Marathon Digital Holdings (MARA) along its 50-day moving average. This is in theory actionable using the 50-dma as a tight selling guide, but further upside would likely depend on continued upside movement in $BTCUSD itself as the two closely correlate.
Meanwhile, silver remains in a short three-week uptrend off the late May lows. The Aberdeen Physical Silver Trust (SIVR) posted a pocket pivot at its 20-dema on Friday, which may be actionable using the 20-day line as a selling guide.
If we could issue a blanket BUY signal on AI meme-stocks we would, but the hard reality is that most of the market is simply coming up from its lows as it attempts to play catch-up in June. Now that CPI and PPI data and the Fed policy announcement are out of the way, major market catalysts have been taken out of the picture, at least for now.
The Market Direction Model (MDM) remains on a CASH signal. The number of sharp cross currents remains pronounced in one of the most bifurcated markets observed.