When Everyone Loves Nvidia, Maybe You Want to Think Twice

Note: I will be traveling for the next few days so there will be no column tomorrow. The next edition will be Tuesday.

The market always finds a stock to love. These days it is Nvidia (NVDA) . Mention the stock and you will receive a litany of reasons why it’s awesome and why it is going forever higher. That might be the case, but anyone who has been around the block knows that when too many pile into the same stocks, they all do so believing they will get out at the top. They also believe that they will be the one who knows when the fundamentals start deteriorating before anyone else knows. In reality, that is often not the case. The good news is my mother has yet to ask me about it.

And Nvidia saw absolutely no selling during the 20 minute Fed selloff. In fairness, most stocks saw very little selling. Even the banks. And even energy. There were a few here and there but mostly it felt like a lack of selling everywhere, despite the Russell being down and the breadth being poor.

Just to clear things up, I am not a fan of narrow markets. I dislike when a handful of stocks get all the love. But I am also a slave to my indicators and as long as the intermediate-term indicators are still rising it means overall the majority of stocks are still rising.

Oh sure, they might be chopping about where we see one great day for the Russell only to be followed by three crummy days, but the overall direction remains up. When that changes I will be sure to report it.

The McClellan Summation Index needs a net differential of -1,300 advancers minus decliners on the New York Stock Exchange to halt the rise and more to roll it over, thus the direction remains up. Also the intermediate-term oscillator is still not yet overbought.

Today I want to discuss the recent Daily Sentiment Index (DSI) readings, which have not resulted in much of anything for the market. So let me take you back to the first week of November 2021. That blue arrow on the chart is the last time we saw the Volatility Index’s DSI at single digits (it is currently 16 now after being 9 last Friday) as well as the Nasdaq DSI over 90 (currently 91; no change) and the S&P over 90 (currently 85, so it has not yet gotten over 90).

Notice we had a two-day whack and we went right back up. Not only that we went on to a higher high. Even after that higher high led to a pullback and a sideways market, we went back to the highs.

There is no indicator that is perfect and I’m showing you this, because when I tell you that “the last time was November 2021” everyone thinks, “Top!” But stop and realize that it took two months for that top to carve itself out.

I have no idea if this will turn out to be a temporary pullback or something more major, but I do know that when the indicators turn down this sort of sentiment reading becomes a lot more important. Right now we have a short-term overbought condition.