This recent bounce has been nothing short of impressive, at least to the casual onlooker – the S&P 500 rallied a whopping 11% in 19 trading days, while the NASDAQ Composite almost achieved 15% in the same time. It’s smaller and nerdy sister, the NASDAQ-100, sprinted above the July 2023 Highs and is within 4% of making an all-time High in price.
All is great. Or so it seems to the casual onlooker.
I can’t help feeling like we’re at one of those midnight street race get-togethers. A lot of proper naughty boys and gals have shown up, mingling in a shadow-strewn circle of muscle car headlights, “AI” and “Nvidia LFG!” tats proudly presented, neon-color cars with self-made android robots sitting on the passenger seat, staring you down. Microsoft logos on the hood.
But if you so much as lift up the hood of one of the cars – while its respective owner is locked in a cocaine-fueled pontification to his groupies how he fired his lawyer and will now represent himself in a traffic speeding court case using chatGPT hooked to a text-to-speech app – you will see that there is really not that much substance there.
No V8 engine. No turbochargers. Not much of anything. How long until the rumors spread that these cars are actually not that ‘hot’?
Or have they already started spreading?
The last weeks have been a steady pace of up-up-up (read more on this in my market profiles), but the signs point that this bounce is nothing more than volatility spree from massive short-covering, historic corporate stock buy-backs, the biggest retail dip-buying frenzy since February 2022, and lemming mentality in institutional money. Breadth has been abysmally thin, leadership is absent, and trading character of important equities erratic like Jack Sparrow on amphetamines.
It appears, the rumors might have started to spread though. Hedge fund net long positions of the ever-hyped tech mega-caps have steadily declined, with selling reaching an 8-month high. Software and technology-related equities are more sold than bought – especially in the industries of IT software and semiconductors & -manufacturing equipment (capital goods).
In other words, prices are marked up to lure in the dumb money so that the smart money can sell.
The rally is now stalling, extended, tired – a pullback is in the cards. But never underestimate the FOMO in this AI euphoria market – we might see all-time new Highs on all the popular indices in late 2023/ early 2024 before this house of cards starts tumbling down.
