Wherever you encounter leadership in life, the behaviour of the leader will to a large degree shape the success and future of whatever undertaking they’re leading – whether that’s a family, a business, a project, or anything else.
It’s the same in the stock market – as the leaders go, so goes the market. Large money interests bailing from the best and strongest in the market is a warning sign to be heeded, especially should no other stocks assume leadership roles.
For much of the AI rally in 2023, Super Micro Computer (ticker SMCI) was the single best stock in the market. Forget about NVDA, AMD, MSFT, or any other AI coryphaei. While the widely hyped NVDA for example made respectable 470% gains from Jan 2023 to March 2024, SMCI boomed a phenomenal 1400% in the same time.
See here SMCI’s ascent, first in log- and then linear scales:
However, 2023 was a thin and choppy year for the market, as the rally was largely driven by cyclicals & industrials along the blue-chip big tech names. The erratic trading character caused by headwinds in NASDAQ’esqeue issues made risk management as good as impossible in many individual names, and so with SMCI.
Across SMCI’s rally, starting as early as 2021, there was not a single low-risk entry point – you would have had to buy SMCI on a pullback, on a volatile gap-up in May ’23, or on faith. All things a successful speculator does not and will not do. And so, typical for such erratic markets, SMCI went on its merry way, shaking risk-aware traders out at every possible juncture of its ascent.
SMCI’s top ticked all the boxes of a topping leader – a late-stage choppy digestion spanning Aug ’23 to Jan ’24, a melt-up climax run recording 240% gains within 21 days, a classical 1-day reversal on 34M shares/d (a signal first described by the famous Livermore as early as 1900), and ensuing distribution and lower Lows.
The syndicate of large holders engineering the mark-up had been feeding news to the media and employing their network of players to maintain the media buzz all along. During the climax run and as late as a month after the top, analysts were still pushing skyhigh price upgrades to lure in the dumb money to unload their shares to (table from finviz.com):
| Date | Action | Analyst | Rating Change | Price Target Change |
|---|---|---|---|---|
| Apr-24-24 | Initiated | KeyBanc Capital Markets | Sector Weight | |
| Mar-25-24 | Initiated | JP Morgan | Overweight | $1150 |
| Mar-06-24 | Initiated | Argus | Buy | $1350 |
| Mar-04-24 | Initiated | Goldman | Neutral | $941 |
| Feb-15-24 | Initiated | BofA Securities | Buy | $1040 |
We’ll see how the rest of the market will do – however, it’s been uninspiring and choppy for a long time, and should it continue to drift up (some gurus are calling for a melt-up of the SP500 to $6-7000!) then the only reason you should be interested in speculating long in leading stocks is if new ones show up and behave well.
So long,
TGS
