Nvidia Is Holding the Entire Market Hostage
It's the only stock that really matters right now, and each time it guns higher, it triggers billions of buying into a small gang of mega caps.
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The market saw some corrective action on Friday and Monday, as Nvidia NVDA finally pulled back, and money was rotated into the Dow Jones and Russell 2000. But on Tuesday, Nvidia rallied, and the rotation reversed as money moved back into the "Magnificent Seven" and the Nasdaq 100 QQQ.
Sure, some headlines are coming up about good earnings from FedEx FDX and a joint venture between Rivian RIVN and Volkswagen VWAGY, but there is really only one issue that currently matters: Will narrow market strength continue with big-cap technology leading? Whether that happens or not is highly dependent on Nvidia alone.
When money flows into Nvidia, it triggers billions of dollars in buying in the same big-cap technology names that have been driving the market all year. There is some worry that this rally is growing old, but with so few pullbacks, dip buyers can not resist jumping in on minor weakness.
Many strategists suggest that the only way to play this market is to stick with "high quality" names, and those names are all Magnificent Seven stocks with good earnings. If Nvidia keeps performing, then the belief is that it will drag along all the other big-cap technology names.
Unfortunately, this dependency on a single stock makes trading pretty miserable for the majority of the market. My screens are littered with charts of solid stocks that are steadily drifting lower, because of disinterest and a lack of news flow. Why buy anything other than the Magnificent Seven? There is very little positive momentum, even in stocks with good valuations and positive stories.
At some point, economic news or earnings will disrupt Nvidia’s market dominance, but until something changes, it will be the only stock that really matters. It holds the rest of the market hostage. Charts and fundamentals can't provide any real value or insight.
My game plan is to continue to look for stocks with solid fundamentals and to track charts as they develop. The Nvidia obsession will control short-term movement, but as we move into earnings season in a couple of weeks, there should be more focus on the merits of individual stocks.
At the time of publication, DePorre had no position in any security mentioned.
