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Rug Pull #76 Of The Year So Far?
Futures were bright green in Asia trading hours and at the time of writing have faded somewhat, all the way to red in the case of the Dow and the Russell. The spike up after hours yesterday was, of course, a result of the blowout Nvidia earnings. The company announced $13.5bn of revenue for their quarter ending 31 July, up from the already-gargantuan guidance of $11bn. The implication of this huge beat - and guide for the 31 October quarter to $16bn of revenue - is that enterprise customers are embarked upon a renewed round of technology capex. And the effect of that is going to be ripple effects through the technology sector. If Nvidia is shipping a vast quantity of GPUs from Nvidia then what follows from that is a raft of server hardware is also going to get shipped. Which means a series of network hardware upgrades are likely to be required. Which means better and faster software can be run on those new systems, and that will need to be sold, and installed and integrated by Accenture ($ACN) and their ilk. And so on.
If a real-world catalyst were needed to propel the Nasdaq, and for that matter the tech-heavy S&P500, to new all time highs, then this is it. The narrative is "AI", the reality is a capex refresh cycle. Reality isn't always needed to elevate risk asset prices, as the post-Covid crisis rally proves, but when Main Street spending and risk-on financial conditions coincide, the effect can be powerful.
What happens next in the short term is anyone's guess. Call buying into Nvidia earnings was heavy and we expect significant price target uplifts to come from Wall Street sellside analysts today and tomorrow. This will draw a great deal of late money into $NVDA and any other stock that can credibly claim to be an AI name. This is perfect conditions for Big Money to use this flood of money for the purposes of exit liquidity. Probably not with all their stakes in these names, but certainly buying by late money can provide a little cashed gains for any positions Big Money was picking up at the 2022 lows. In which case we may see something of a fade both with Nvidia itself as well as the Nasdaq, before a new move higher (after the civilians have frightened themselves).
In staff personal accounts we don't plan to short any such fade, if it comes. We would rather miss out on the temporary short profit opportunity in order to not risk missing a subsequent swing to the upside. At moments like this in tech - and they don't happen often - sometimes the Nasdaq and other tech names do just go straight up for a fashion. If that's not going to happen here, we'll all know, because we'll all see the rally stutter and fade. In which case we can change our plan.
For now we sit heavily long in the Nasdaq as you know from these daily notes and from Slack trade alerts. So let's see where that takes us.
The Meat In The Sandwich
For our paying members only we now walk through the shorter- and longer-term outlooks for the S&P500, the Nasdaq, the Dow and the Russell.
We also include more detailed Cestrian staff personal account trading plans in our charts - these are disclosures rather than commandments, we include them to (1) clarify our own thinking and (2) to help explain what we think about the direction of markets. Paying Inner Circle members can reach out in Slack anytime to discuss. You will, of course, make your own decisions as to how to use our charts.