Semiconductors Steal the Show

NVDA and SMCI were major a focus

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Our View

Needless to say, the Super Micro story bushwhacked the bulls and kneecapped NVDA, despite the firm reporting higher-than-expected revenue for the second quarter, but I did send out an update. I questioned everything — including selling the NVDA news. 

The reason I mention the story of Super Micro Computer delaying its filing with the SEC is because yesterday’s OP was about my experiences on the trading floors during the 2000 tech bubble (but I wrote that before I knew the SMCI story was out). 

I pointed out the total market capitalization of the Dot-com crash was $47 billion… versus Nvidia’s current market cap of $3.1 trillion. But the new comparison is Super Micro’s market cap, which was ~$35 billion before the news broke. That’s only a $12 billion difference vs. the Dot-com market cap. 

Where am I going with this? Well, I think if the big $1T to $3T tech firms all stumbled, there would be a major problem. Just look at what happened to SMCI. The stock fell 26% in early trading Wednesday, putting shares at $405. Shares have fallen 54% in the last 3 months, but are still up almost 43% since the start of the year and the market cap has fallen from $35 billion to $26 billion. 

What if two or three of the Mag 7 started to roll over. Or worse, all seven?

MiM and Daily Recap

The ES traded up to 5650.50 on Globex at 5:03 a.m., then dropped 12.75 points to 5636.00 at 8:00 a.m., and opened Wednesday’s regular session at 5640. After the open, the ES traded up to 5644.50, sold off to 5631.75, rallied to a lower high of 5640.75 at 10:36, and then sold off 36.75 points to 5604.00. The ES rallied back to 5614.00, sold off to 5596.00 at 12:24, rallied again to 5616.25, and then sold off 38.75 points to 5577.50 at 2:01, with 143,000 contracts traded on the drop. (They kept testing that 5600 level, which I had pointed out in yesterday’s OP as notable support. Ultimately, they flushed the stops at and just below this level, before reversing this ES higher).

After the low, the ES rallied to 5615.50 at 3:03, pulled back to 5599.00, and then traded up to 5617.25 at 3:48. The ES traded 5613.25 as the 3:50 cash imbalance showed $2.1 billion to buy, then dropped to 5610.00 at 3:51, traded up to 5621.50 at 3:54, and sold off to 5611.25 at the 4:00 cash close. After 4:00, the ES weakened as the NQ fell, pushing the futures down to 5576 and settled at 5593.50. The NQ closed at 19,310, down 325 points or 1.6% on the day.

In the end, no matter the rally — whether it was 10 points or 30 points — it was sold. In terms of the ES’s overall tone, it was “follow the leader” — the NQ. In terms of the ES’s overall trade, volume was low for the size of the move at 1.31 million contracts traded. And again, NYSE volume was around 530 million shares going into the final minutes, with over 500 million trading on the close. The reason I point this out is because ETFs make up most of the closing volume. 

Technical Edge

Guest Post — Dan at GTC Traders

It’s a Bubble Part One:  Valuations

In this “Opening Print” on June 27, 2024, we stated the following:

“For both predetermined quantitative and qualitative reasons, we believe that we are in the late stages of a longer-term stock market rally; and are in the beginning stages of a stock market bubble. When this happens, our portfolio mandate switches us to play what Poker players would call a very ‘nit’ game. In other words, all of our programs become very … tactically tight. Smaller position sizes.”

Sounds interesting.

First we should mention that Ray Dalio has written an article of why he believes we are not in a Stock Martket Bubble as of yet.  And we think it’s an excellent article everyone should read carefully.  His ideas offer interesting insights that are important to consider.  We would offer that we believe that Ray’s article and research deal with identifying the late stages of an already developed stock market bubble.  As mentioned above, we believe that we are in the late stages of a longer term stock market rally; and are in the beginning stages of a stock market bubble.  Which is a bit different.

Okay.  Then what are our “quantitative and qualitative” reasons for this belief?  We thought we could begin to discuss those reasons over the coming weeks.  This week we will deal with the concept of market valuation.

There are very basic, very old models used to ‘value’ the overall market.  These models have been in use for a long, long time.  And the reason they have been in use for a long time?  Is that they work.

For instance, as a way to value Equities / Stocks; there is Warren Buffet’s favored models.

With one of those models, you simply take the Total U.S. Stock Market Value and divide this by the Gross Domestic Product (GDP).  The percentage return can be graphed, and tends to indicate the ‘health’ of stock prices relative to how the economy is doing.   At the moment, that read looks a little something like this …

As you can see, we are at an extreme valuation by this measure.

At the same time, Berkshire Hathaway is selling more and more of its stock; and raising more and more cash.

And we are left to believe that such indications of the extreme nature of Corporate Liabilities, this same measure that by his own admission is one of Buffett’s favored market valuation metrics ….. is not related to their record cash holdings?

Yeah … right.

But this is simply one measure of an overvalued market.  There are others, and perhaps we can get into those in the coming weeks.

Stay safe … and trade well …

Economic Calendar

For a more complete Economic Calendar see: https://mrtopstep.com/economic-calendar/

Disclaimer: Charts and analysis are for discussion and education purposes only. I am not a financial advisor, do not give financial advice and am not recommending the buying or selling of any security.

Remember: Not all setups will trigger. Not all setups will be profitable. Not all setups should be taken. These are simply the setups that I have put together for years on my own and what I watch as part of my own “game plan” coming into each day. Good luck!