Market On Open, Tuesday 7 January

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Nvidia x Naysayers

by Alex King, CEO, Cestrian Capital Research, Inc

We spent a long time during yesterday's live Inner Circle webinar examining whether a top is in. Plenty of folks, smart folks, arguing that we're done for this cycle and now something bad is going to happen. I do not say they are wrong - nobody knows - but I do say that thus far most all the sensible bear arguments out there are fundamentalist in nature ie. the arguments are based on some combination of (i) high p/e and other valuation multiples (ii) slowing growth in earnings (iii) US national debt levels (iv) incoming trade policy when the new Administration commences (v) credit card debt and deliquency rate (vi) Fed policy errors due to their use of out-of-date and/or plain incorrect inflation data. And so on. Now, again, they could be right. The market could turn this morning and keep selling down for a very long time - of course it could. But as of right now, as of the time of writing, that's not the price pattern in play in most of the important markets. The S&P500 and Nasdaq look bullish to me. $XLK and $SOXX look bullish to me, and since they underpin the S&P and the Nasdaq, that supports the bull thesis on thoses indices too.

But.

Sometimes, sometimes, the Dow and/or the Russell lead the major indices. The Dow, for instance, was the first to move up and out of the bear market in 2022. It fair rocketed out of the gloom in September 2022, in fact, leaving the S&P and the Nasdaq in the dust for a while. And the Dow hit a key extension in the move up from the August 2024 lows sooner than have the S&P or the Nasdaq. And has since been selling off. It is possible, as Zeberg argues, that the Dow has already topped. And if the Dow has topped it is very possible the other indices will follow it down.

In real time in our Inner Circle service we are testing this theory by publishing trade disclosures of PA Dow trades, these trades being carried out on the basis that the Dow is in a bear already. The trades are small allocations, so if wrong cost the accountholder (me!) very little. But the success or otherwise of the strategy is a useful canary in the coalmine.

Without further ado, let's get to it.

Short- And Medium-Term Market Analysis

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