November 21, 2024
Good morning,
I believe the market is set up this morning to give us a clear snapshot into its current psychological state. If most readers of these Morning Notes are long-term investors, as opposed to traders, why should we care about a snapshot in time? We all believe that the key to successful long-term investing is keeping portfolios aligned with the long-term trends of the market. Currently, the market is in a cyclical bull market short-term (months) trend since October 2022, inside a long-term (years) secular bull market trend since March 2009. However, all long-term trends start as short term trends that last. We take snapshots of the short-term to look for increasing counter-trend evidence.
Two weeks ago, we observed new highs in the major indices that went unconfirmed by breadth and tape signals (divergences) – one piece of short-term trend-changing evidence. It usually takes many pieces of evidence to change trends. Today, we may get insight into another piece. Exciting, right?
Today’s signal is connected to how the market handles last night’s NVDA earnings and projections call. The $35.1 billion revenue figure was pretty much in line with the whisper number. Guidance for $37.5 billion of revenues in Q4 looked a little light relative to expectations, which pushed the stock lower in after-hours trading. However, with Nvidia, the new Blackwell chip is a key factor for the future, and news that it will start shipping this quarter is a positive. While production will ramp up next year, the company expects an order backlog to persist for several quarters. While that is non-revenue-maximizing in the short-term, it does provide a “hopes and dreams” anchor for the market to remain optimistic about, should it choose to do so.
Whether it will make that choice is another question (our snapshot). With the stock aggressively priced, a notable slowdown in the ramp-rate of revenue and earnings growth makes it a little difficult to justify sky-high valuations (or at least an ongoing parabolic rise in the share price.) The reaction we get over the next few days will say quite a bit about investor psychology here. The less-than-ebullient revenue guidance provides ample reason to take profits and take the stock lower; if the market chooses to focus on the bullish Blackwell rhetoric, that will be a clear sign that animal spirits in AI are still alive and well.
While S&P Futures were under water all night, they are currently (8:30 am EST) green and up +.25%. NVDA shares, underwater (~3%) all night, are currently virtually unchanged (and rising) from yesterday’s close. Once again, repeating Monday’s Morning Note close – we must give the bulls the benefit of the doubt (until more counter-trend evidence appears).
Be well,
Mike
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