Anxious Bears Are Overlooking Great Trading in Many Individual Stocks
Bears are desperate for corrective action, but AI spending continues to boom, and there are many pockets of positive technical action.
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Fed Chair Jerome Powell didn’t say anything new on Tuesday, but he provided a convenient excuse for a little profit-taking in a very hot market. Still, the dip buyers are already showing some interest on Wednesday morning.
Some bears have been scoffing at the huge amount of AI spending that has recently been announced. In particular, the deal between Nvidia NVDA and OpenAI, in which Nvidia is making an equity investment in OpenAI and OpenAI is using the funds to buy more AI chips from Nvidia. This vendor financing isn’t anything new, but it looks overly aggressive to the folks who are trying to call the AI industry a bubble.
Despite the negative spin, AI spending keeps coming. Chinese tech giant, Alibaba BABA, jumped 9% overnight after announcing it would spend $53 billion on AI. Also, Micron MU announced a 46% jump in revenues due to AI spending.
The amount of capital being thrown at AI is remarkable, but with the indexes near all-time highs and the S&P 500 not pulling back more than 2% for the last 107 trading sessions, there are plenty of folks looking for a good reason for a market pullback. AI spending is a good target for bears that are trying to come up with an argument that the market is far too optimistic about what it means.
My best advice is to focus more on the action in individual stocks and not worry too much about the indexes. There has been quite a bit of rotational action with small-caps and the Magnificent Seven taking turns at leading. The Mag 7 is back in the lead again Wednesday morning after lagging on Tuesday.
The most important action right now is the many pockets of strong momentum. There are hundreds of stocks hitting new all-time highs, and many are not crazy extended or expensive. Biotechnology, for example, is offering many good trades right now.
Many individual stocks are setting up well for third-quarter earnings, and some consolidation at this point is exactly what is needed. While the business media will obsess over the indexes, they are missing the fact that there is a large supply of individual stocks that look very good. Stay focused on that rather than the headlines about indexes.
At the time of publication, Rev Shark was long NVDA.
