Are stocks about to stop?

To state the obvious, stocks are booming

The S&P 500, Nasdaq Composite and Nasdaq 100 hit record highs on Tuesday ahead of the June holiday.

Giant Nvidia chip (NVDA) Not only did he reach a new high. It has surpassed both Apple (Camel) And Microsoft (MSFT) To claim the title of the world’s most valuable company.

Nvidia ended the day at $135.58, up 3.51%, with a market cap of $3.335 trillion.

The market value of Microsoft was Just $3.317 trillion, and Apple $3.286 trillion.

So the current setup is like this:

Nvidia is now up 174% in 2024, after jumping 239% in 2023. This is the first time in perhaps 20 years that someone other than Microsoft or Apple will be the most valuable US company.
The Nasdaq-100, which includes Nvidia, Microsoft and Apple, rose 18.3% after a 53.8% jump last year. Microsoft and Apple shares are up 18.7% and 11.3% for 2024, respectively.
VanEck Vector Semiconductor ETF (Trait) Up to 58.3%. (NVIDIA is the largest component of ETFs, accounting for 23% of assets.)
The Nasdaq Composite Index rose 19% after rising 38.9% in 2023.
The S&P 500, at 5,487, was up 15% after rising 22.4% last year.

The following questions are:

How high can the market go?
How can people tell?
Are stocks about to stop?

You can gather dozens of people around a table and get dozens of answers.

The most extreme may be Julian Emanuel, chief strategist at Evercore ISI, who raised his year-end target for the S&P 500 from 4,700 to 6,000 points. Reason: inflation is moderate. Artificial intelligence cannot be stopped.

Goldman Sachs proposes the idea of reaching the 5500 level, which means that the market is approaching its peak.

Some actually see stocks falling, i.e. stopping. But their view represents a minority on Wall Street, which actually favors markets moving higher.

Traders work on the floor of the New York Stock Exchange in April.

Michael M. Santiago/Getty Images

See the booth in the charts

Having the idea that procrastination might be at hand means keeping an eye on the charts.

Procrastination may not mean collapse. But procrastinating is the first step.

You should pay attention to several things:

Look for a series of wins. The S&P 500 and Nasdaq rose for seven straight days.
Then, the stock or index makes big gains early in the day but loses more than half by the close.
Today’s volume should be higher than the previous day.

A look back to 2007 is instructive.

Stocks rose steadily from the summer of 2006 to February 2007. The market then declined until early March and rose nicely in July. Suddenly, there were rumblings about the health of banks and real estate, and another booth started.

More about markets

This led to a major blackout that ended in mid-August. The new purchases pushed stocks higher until Oct. 9 when the Dow Jones Industrial Average, S&P 500 and Nasdaq all hit record highs.

Stocks fell again, then tried to rise. On October 31, the Nasdaq hit a record high of 2,859 points, an increase of 18.6% year-to-date, but the Dow Jones and S&P 500 failed to reach new highs.

Since then, any attempt to push stocks higher was immediately followed by heavy selling in the 2008-2009 crisis.

The Nasdaq 100 appears to be at the top of the rally

So, coming to now from the market:

It appears that the Nasdaq 100, even if dominated by Nvidia’s gains, may be about to stall. Here’s how:

The index recorded a record close on Monday, rising 242 points.
It was up just 6 points on Tuesday. (But the record is still close.)
The index rose as much as 37 points on Tuesday, but lost 83% of its gains at the close.
Trading volume on Tuesday reached 5.8 billion shares, 110% of daily volume so far in June.

But even if the market is on the verge of a recession, the forces arrayed against it are nothing like what happened in 2007.

Let us remember that 2008 was also an election year. The banking system was on the verge of collapse.

However, elections are serious business, and geopolitics is a serious wild card.

Stocks are unbalanced

Nvidia’s astonishing gains hide a troubling truth: A truly healthy stock market should rise fairly evenly.

The 11 sectors in the S&P 500 suggest that’s not the case.

IT sector, including Nvidia, Microsoft, Apple, and Advanced Micro Devices (AMD) , by 31.5% this year. Communications services sector, including Google subsidiary Alphabet (Google) And Facebook identification platforms (dead) by 23.1%.

The gains of the other nine sectors rose by less than 10%. About 42% of S&P 500 stocks fell during the year.

The Dow Jones index, which does not include Nvidia, rose just 3%.

Worse still, only a few small-cap stocks are sharing in this year’s gains. The Russell 2000 is flat throughout the year.

While one can cheer for technology stocks, remember that stocks do not guarantee gains.

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