The Market Is Climbing a Wall of AI Bubble Worries
The bears may be geniuses, but they are clueless when it comes to timing a market top.
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There was another feeble try at corrective action on Thursday, but the indexes suffered only minor losses. Although about 65% of stocks finished the day in negative territory, strength in big-cap names, such as Nvidia (NVDA) , Meta (META) , Costco (COST) , Oracle (ORCL) , and Pepsi (PEP) supported the indexes, while smaller stocks were sold.
The bubble talk has become so pervasive and loud that it is becoming a contrary indicator. When everyone believes there is a bubble, but the market doesn’t collapse, it creates conditions for short-squeezes and FOMO.
The best explanation of what is going on is that the market is climbing a wall of AI bubble worries. What happens is that worries drive some mild profit-taking and lots of negative talk, as seen in recent comments by Jamie Dimon of JPMorgan Chase (JPM) . While that causes investors to raise cash levels, when the price action doesn’t confirm the concern, the folks with excess cash inch back in, and that drives things back up and creates fear of missing out. The unfulfilled worries are a powerful positive catalyst.
There is a tremendous amount of worry that the market is technically extended and valuations are extremely high. Everyone is very aware of the arguments. There is no disputing that the bears have some very good points, but the market doesn’t care about their arguments, and it's uncertain how long this will continue.
At this point, if there is a sudden drop in the market, it is very likely that the dip buyers will be highly aggressive. Dip buyers have had few chances to act and are jumping on very minor pullbacks so far. Dip buyers don’t go away until they are trapped and suffer damage a few times, and that isn’t happening at all.
Despite the poor market breadth on Thursday, the list of speculative stocks up more than 10% was very long once again. This market won't make it easy for the bears, regardless of their intelligence.
Have a good evening. I’ll see you Friday.
At the time of publication, Rev Shark was long NVDA and META.
