Nvidia stole the show yesterday and guided the rest of the market with it. It had been choppy and very mixed lately but the 5% gain in Nvidia seemed to be the green light for all of the indices to rally and both the S&P 500 and Nasdaq closed at new highs. The Dow lagged, mostly because it does not contain Nvidia, and yields were down again sending bonds and the F-fund higher.
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The 5% gain in NVDA made it the 2nd largest market cap stock in the S&P 500, as it surpassed Apple and only Microsoft is bigger. It is debatable whether it a good thing for one stock to call the shots, like Apple once did. At some point the leader needs a rest and since Nvidia went from a $1 trillion company to a $3 trillion dollar company in just 7 months, and the stock price tripled along with it, what happens if it has a 10% pullback, which is more than reasonable to expect?
NVDA is also up 60% since mid-April alone. Is that sustainable for the 2nd largest company? Also, Nvidia's stock will split 10-1 at the end of this week so that could also be one of the catalysts for the recent move. That doesn't change the market cap. Owners will just have 10 times the number of shares at 1/10 the price.
Here's the comparison of Nvidia's stock vs. Apple, the prior market darling, over the last year. They don't always go straight up.
Right now it is going straight up and the S&P 500, a.k.a. the C-fund, is riding the wave. Small caps (S-fund) were up yesterday in sympathy with those large techs rallying, but you can see that they are not acting similarly.
The Russell 2000 small cap index looks similar to the S-fund chart as you might expect, so rather than repeat the DWCPF chart, I wanted to point out that this negative divergence in the small caps could possibly resolve itself with small caps catching up, rather than the S&P 500 rolling over. I don't know which will be the case, but there is a possible bullish inverted head and shoulders pattern forming the right shoulder in small caps right now. There is an open gap near 200, so there may be some cleaning left to do on the downside.
On the other hand, the market leading Transportation Index looks terrible, despite yesterday's gain. That is a head and shoulders pattern in a downtrend, below the 200-day average. That's one of the worst setups a chart can have, so nothing is easy.
One more comparison is the S&P 500 vs. the Equal Weighted S&P 500 Index. Same 500 stocks, but with all stocks weighted the same.
So the smaller stocks in the S&P 500 are not keeping up. The C-fund doesn't care, but it does show some internal weakness and maybe some vulnerability if some of these bloated tech stocks do start to pull back like Apple did earlier this year.
The 10-year Treasury Yield was down again as more jobs data came in weak again, and the main monthly report comes out tomorrow (Friday.) Estimates are looking for a gain of 185,000 jobs and an unemployment rate of 3.9%.
Not that I trust any one jobs report to be accurate since they do a lot of revisions after the fact, but the stock market is going to react tomorrow, and probably in a big way - but which way? How strong of a report is too strong for the Fed? How weak is too weak? What's the Goldilocks number? Do we want strong economic data or weak? Should we care more about the economy or the direction of interest rates?
Lots of charts, lost of talk, lots of opinion. It's all too convoluted and believe me, if you are worried because you don't know what is going on or what's going to happen, you are not alone. Even the pros are scratching their heads these days. Stocks are going up and we could see some chasing. But they also like to pull the rug out from under us just as it feels comfortable.
The S&P 500 (C-fund) made a new high yesterday and the recent run seemed to come out of nowhere after that mightily positive reversal day on a spike in trading volume last Friday, that no one can explain. Fake out, or break out? The jobs report could make that determination tomorrow.
The EFA (I-fund) closed at a new high although it could be a temporary double top -- unless it does what the S&P 500 just did. This chart looks good, and has for while now. I had been concerned about the dollar showing strength but that seems to have eased again.
BND (bonds / F-fund) is jumping on this recent pullback in yields, and as I mentioned in yesterday's commentary, it may be time for bonds to outperform stocks for a while. That is if yields don't bounce back right away.
Thanks so much for reading! We'll see you back here tomorrow.
Tom Crowley
Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php
For more info our other premium services, please go here... www.tsptalk.com/premiums.html
Daily Market Commentary Archives
To get weekly or daily notifications when we post new commentary, sign up HERE.
Posted daily at www.tsptalk.com/comments.php
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.
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The 5% gain in NVDA made it the 2nd largest market cap stock in the S&P 500, as it surpassed Apple and only Microsoft is bigger. It is debatable whether it a good thing for one stock to call the shots, like Apple once did. At some point the leader needs a rest and since Nvidia went from a $1 trillion company to a $3 trillion dollar company in just 7 months, and the stock price tripled along with it, what happens if it has a 10% pullback, which is more than reasonable to expect?
NVDA is also up 60% since mid-April alone. Is that sustainable for the 2nd largest company? Also, Nvidia's stock will split 10-1 at the end of this week so that could also be one of the catalysts for the recent move. That doesn't change the market cap. Owners will just have 10 times the number of shares at 1/10 the price.
Here's the comparison of Nvidia's stock vs. Apple, the prior market darling, over the last year. They don't always go straight up.
Right now it is going straight up and the S&P 500, a.k.a. the C-fund, is riding the wave. Small caps (S-fund) were up yesterday in sympathy with those large techs rallying, but you can see that they are not acting similarly.
The Russell 2000 small cap index looks similar to the S-fund chart as you might expect, so rather than repeat the DWCPF chart, I wanted to point out that this negative divergence in the small caps could possibly resolve itself with small caps catching up, rather than the S&P 500 rolling over. I don't know which will be the case, but there is a possible bullish inverted head and shoulders pattern forming the right shoulder in small caps right now. There is an open gap near 200, so there may be some cleaning left to do on the downside.
On the other hand, the market leading Transportation Index looks terrible, despite yesterday's gain. That is a head and shoulders pattern in a downtrend, below the 200-day average. That's one of the worst setups a chart can have, so nothing is easy.
One more comparison is the S&P 500 vs. the Equal Weighted S&P 500 Index. Same 500 stocks, but with all stocks weighted the same.
So the smaller stocks in the S&P 500 are not keeping up. The C-fund doesn't care, but it does show some internal weakness and maybe some vulnerability if some of these bloated tech stocks do start to pull back like Apple did earlier this year.
The 10-year Treasury Yield was down again as more jobs data came in weak again, and the main monthly report comes out tomorrow (Friday.) Estimates are looking for a gain of 185,000 jobs and an unemployment rate of 3.9%.
Not that I trust any one jobs report to be accurate since they do a lot of revisions after the fact, but the stock market is going to react tomorrow, and probably in a big way - but which way? How strong of a report is too strong for the Fed? How weak is too weak? What's the Goldilocks number? Do we want strong economic data or weak? Should we care more about the economy or the direction of interest rates?
Lots of charts, lost of talk, lots of opinion. It's all too convoluted and believe me, if you are worried because you don't know what is going on or what's going to happen, you are not alone. Even the pros are scratching their heads these days. Stocks are going up and we could see some chasing. But they also like to pull the rug out from under us just as it feels comfortable.
The S&P 500 (C-fund) made a new high yesterday and the recent run seemed to come out of nowhere after that mightily positive reversal day on a spike in trading volume last Friday, that no one can explain. Fake out, or break out? The jobs report could make that determination tomorrow.
The EFA (I-fund) closed at a new high although it could be a temporary double top -- unless it does what the S&P 500 just did. This chart looks good, and has for while now. I had been concerned about the dollar showing strength but that seems to have eased again.
BND (bonds / F-fund) is jumping on this recent pullback in yields, and as I mentioned in yesterday's commentary, it may be time for bonds to outperform stocks for a while. That is if yields don't bounce back right away.
Thanks so much for reading! We'll see you back here tomorrow.
Tom Crowley
Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php
For more info our other premium services, please go here... www.tsptalk.com/premiums.html
Daily Market Commentary Archives
To get weekly or daily notifications when we post new commentary, sign up HERE.
Posted daily at www.tsptalk.com/comments.php
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.
