Regime Change?

Considering that equity markets in the US got hit hard this week with the Nasdaq 100 giving up most of its gains for the year (down over 7% over the past 30 days) and now only up +1.25 % for the year, the question is what does that portend going forward? And of course, the question of what is happening and why? There are multiple factors that need to be considered.




First, the AI revolution that has driven the magnificent 7 and equities through the roof got way ahead of itself with a blow-off top in early March this year. A bearish engulfing pattern in Semis and NVDA occurred at all-time highs in both and was the clue that the huge rally might be ending.  However, it took over a month for the market to confirm that the bearish short-term pattern was legit. NVDA has been a key driver of the move up in equities, moving from just above 100 in October 2022 to 970 by March 2024. One thing for sure is risk management is key in this environment and our trading models sold a portion of its holdings at 960. By the close this Friday, NVDA backed off 10% on the day, closing at 760.



Also, it’s important to note that the action in gold and silver confirmed that a potential top was in as well. Gold exploded to the upside, breaking out to new all-time highs and up almost 15% since March. Typically, gold does not like higher interest rates and a strong dollar. Nonetheless, Gold's move up shocked many professionals. So, Gold’s sensitivity to geopolitical risk superseded its sensitivity to higher interest rates and a strong dollar, which was yet another clue that the market’s bull run might be running out of steam.

Additionally, soft commodities have also moved up sharply (food prices are exploding), driving inflation up and wreaking havoc on the markets’ expectations of lower rates. Our GEMS trading model has capitalized on these shifts and is outperforming all key benchmarks, moving out of equities into GLD, Silver, DBA, and exiting Semis.



The big takeaway, at least for now, is that value stocks (VTV) are now leading growth stocks for the first time since June 2022, according to our leadership indicator, both on a daily and weekly basis.



More By This Author:

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Disclaimer: The information provided by us is for educational and informational purposes. This information is based on our trading experience and beliefs. The information on this website is not ...

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