Despite NVDA reporting impressive numbers, there was no real reason for the stock, which was already overbought, to experience such a significant surge. This can only be attributed to extreme FOMO (Fear of Missing Out). Remember the chip shortages (during COVID), especially for automobiles, which drove second-hand car prices to the moon. Suddenly, the shortage ended and the second-hand market collapsed. The demand for these high-end, ultra-expensive chips could dissipate just as quickly. Why? Despite all the AI-hype, only the chip manufacturers are profiting significantly, reminiscent of the gold rush in California, where the shovel sellers banked a fortune.
Another example is MRVL, whose earnings dropped by 40%. However, merely mentioning AI caused their stock to soar by 32%.
.Marvell, a company based in Santa Clara, reported earnings of 31 cents per share on sales of $1.32 billion for the period ending April 29. This surpassed analysts' expectations of 29 cents per share on sales of $1.3 billion. However, their year-over-year earnings fell by 40% while sales dropped by 9%. For the current quarter, Marvell forecasts adjusted earnings of 32 cents per share on sales of $1.33 billion. They anticipate their AI revenue in fiscal 2024 to at least double from the previous year and continue growing rapidly in the coming years
It's time to dust off your copy of "Extraordinary Popular Delusions and the Madness of Crowds.
The current market behaviour differs from the market action seen after the COVID crash. As the market continues to climb higher, the number of stocks trading above their 200-day moving average (200MA) is actually decreasing. The Russell 2000 and the SP400 display distinct divergence patterns. These indices peaked in January and February of 2023 and have consistently recorded lower highs since then.
The Dow Jones Industrial Average (Dow) also peaked on the 1st of May, putting in lower highs, while the S&P 500 remains relatively flat. Only the NDX and the Nasdaq have broken out and are performing well.
Investor sentiment remains within a trading range, indicating that many investors will stay on the sidelines for an extended period, reminiscent of the early phase of the 2009 bull run. Consequently, sentiment readings are distorted as a considerable number of investors express their opinions without having any skin in the game. Therefore, one has to focus on individuals who have a vested interest, and these guys are exceedingly bullish.
Another selling wave is necessary to bring about a rebalancing.
