Hello friends,
The US market remains heavily choppy. Last week I had mentioned that the trends in SP500 and Nasdaq Composite were somewhat confirmed by mid- and small-cap indices such as the Russel-2000. Volatility in this context has not subsided, and the higher Highs of the Russel were immediately and again met with selling:
The Russell-2000:
The Nasdaq Composite:
Though the large-cap indices (Nasdaq Comp, SPX) grind on, there’s really nothing behind those moves than a few index-overweight and overhyped mega-caps with AI exposure (i.e. NVDA, MSFT, AVGO, GOOG). This rally has been consistently wedging up since November, and though a few leading stocks exist, they trade ever so choppy and unreliably that risk control precludes any truly meaningful progress. On top, even the indices have made no real progress since beginning of March, tracing out choppy sideways moves. The Nasdaq Composite has rejected and reversed from the 16,460$ level six times in a month, displaying a top-heavy look. Volume on avereage is high on down-days.
The financial advisor sentiment bull:bear has now risen to a reading of 4.43 – much higher even than during the exuberant 2021 market top, including the meme stock craze! Thin markets meeting overbullish sentiment have no foundation for speculative endeavours … though of course the indices may grind on, slowly melting up more and more.
Opportunities in leading stocks?
As for more than the last year, the market has been driven largely by NYSE-type cyclicals and industrial laggard stocks. Few truly dynamic names have shown up, and leadership remains thin.
Stronger pullbacks have started pulling up in NXT and ELF, two leaders that have shown great trends albeit erratic price action throughout, predicated by the choppy market. Leaders typically start correcting ahead of the indices – paired with the failure of IOT and DUOL to move up, and if more instances of this dynamic show up, these observations have a growing probability of foreshadowing a broader reaction in the indices/market.
Some setups have appeared lately however – CLS, NVDA and VKTX.
For what it’s worth now, NVDA is the market, so how this current consolidation resolves will be a major hint on the near future. It’s initialized by a strong top-reversal, but might still work out. CLS was a short and rather premature digestion and is somewhat stalling now, but the name has been moving well for the last few months. In any case, I tend to stay from such stale, old and/or overcrowded names as the reward/risk ratio is very low.
VKTX is a beast, which however has not been immune from strong fluctuations across the market over the last half a year. The digestion is almost immaculate, but it might not move out before the financials report that is expected in a few weeks. In any case, it’s a biotech, hence the risk is much higher compared to other names, and any risk taken should be relatively small. Monitor the pivot at 89.1$, but in this market the whole thing might also have fallen apart by next week.
In any case, the US market remains choppy and is not providing outstanding opportunities for making gains, just as it has for most of 2023. We’ll see how things develop.
In the meantime, Japanese stocks have also been behaving wobbly of late, so I’ve been shifting gears and been looking at a few smaller European stocks with closer attention. A true gem that might just give an entry point soon is GUBRA:
Always remember – risk control comes first and last. Don’t let FOMO win, let stocks come to you.
So long,
TGS