Will Nvidia Take The Fun Away?

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Will Nvidia Take The Fun Away?

“And with the radio blasting
Goes cruising just as fast as she can now.”
-Fun, Fun, Fun, The Beach Boys 

 To understand where we’re going sociologically, we have to understand where we are  and  we’ve come from.

To get a clear perspective on where we are in the stock market cycle, it is important that we pull the lens back to look at least the last 10 and 20 years.

To get a clear perspective on both we have to understand the mere-preference effect.

This is a psychological phenomenon in which people tend to develop a preference for things merely because they are familiar with them.

We grow to  like something more the more we come into contact with it.

The longer a bull market carries, the more comfortable we become with it

It has nothing to do with fundamentals or reasons necessarily.

Wall Street looks for an array of reasons to explain what moves stocks.

“The first principle: any explanation is better than none. Because it is at bottom only a question of wanting to get rid of oppressive ideas, one is not exactly particular about what means one uses to get rid of them: the first idea which explains that the unknown is in fact the known does so much good that one ‘holds it for true.’ Proof by pleasure as criterion for truth.”
-Friedrich Nietzsche

Trends need no justification, they persists like all objects in motion until another impulse.

While looking back 10 and 20 years and even much further may sound strange coming from someone that’s made their living off day trading and swing trading visa vis my Hit and Run Methodology, all trading is contextual.

What I mean by that is that short term trading exists within the phenomena of long term cycles.

There is a 40 year low to high cycle in the stock market

From the Great Depression price low in 1932, the market struck a major high in in late 1972.

There was a false breakout in January 1973 but the closing monthly high of that period was December 1972 at 1020 on the DJIA.

It is reminiscent of a fling just over another psychological number currently—5000 SPX.

The DJIA would not close above that December 1972 peak for a decade…until November 1982.

So, let’s pull the lens back and take a look at the DJIA and SPX from the start of a major secular bull market in 1982.

I want to look at both with arithmetic and logarithmic charts to get a true perspective.

First the DJIA arithmetic monthly.

The last cyclical bear market started in 2000 and ran until 2009.

While the index scored a nominal new high in 2007 the structure is best counted as an A Wave down into 2002 and a B Wave rally into October 2007 followed by  C  Wave decline into March 2009.

The 2008 crash is consistent with the idea of labeling that as a C  Wave.

I connected the 2009 low with the 2016 low (red Bottoms Line) which nails the closing low in the March 2020 crash on a monthly basis.

Extending the line takes us out to the 20,000 region over the balance of the year.
Keep in mind the line is rising.

Validating the red Bottoms Line is that it parallels a red Tops Line connecting the March 2000 major top with the January 2022 high.

The overbalance in time and price of the drop following the 2022 peak warrants caution as the DJIA is about to kiss the red Tops Line.

Theoretically, it could overthrow it tagging the top of the blue trend channel.

We are looking for a major cycle to exert its downside influence for several years.
That could start at any time between here and into 2025.

It must be said that the bigger the top the potentially larger the move (melt0up into that top.

As W.D. Gann wrote, “The most money  is made when fast moves and extreme fluctuations occur at the end of major cycles.”

Think NVDA and SMCI to mention a few.

But it’s all relative. The extreme moves we’ve seen in many stocks could foment even greater mania.

Check out the table below of what some historic bubbles have done percentage wise.

The problem is that the table doesn’t tell you exactly when the count began as to where the bubbles started.

When there is a confluence of trend lines/channels it typically underscores that something important is going on.

On the above chart there is a third trend channel in purple.

I connected the 2020 low with the October 2022 low and paralleled it off the February 2020 top.

Notice that the DJIA grinds up the purple Tops line until price meets the red and blue rails.

Notice that the purple Bottoms Line also it’s the October 2023 low.

The takeaway is that the October 2023 is key support.

Breakage below opens the door to a drop down to the upper 20,000’s.

Below is a monthly DJIA logarithmic chart.

When you look at historic price action in terms of percentages you get a different picture.

What looks like a blow-off from 2022 or 2022 on the above arithmetic chart doesn’t look that parabolic anymore.

Notice the impulse off the August 1982 low of 360% that perpetuated the 1987 crash.

That crash was barely recognizable on the arithmetic chart.

That impulse off the 1982 was 5 years.

If the DJIA played out an as above/so below scenario, theoretically we could extend 5 years from the March 2020 low.

If we take the same 360% move starting from the 11,00 region which is the area of the first pullbacks following the March 2009 low we get the 40,000 region for the DJIA.

In measuring this way I’m considering a mirror-image foldback pattern…keeping in mind that that 11,000 ish region from 2010 thru 2011 is the low prior to the breakout over the 2007 peak.

So there is some synergy in using that level.

However if we should measure a 360% move off the March 2020 low of 18,200 we get the 65,000 region.

Never say never.

I am not saying that we’re going there.

I don’t know. No one knows.

What we do know is that a major Super Cycle high is due and that as offered above the bigger the top the bigger the melt-up preceding that top.

Like a cross-word puzzle we’re going to have to analyze the clues as they shape up.

On the logarithmic chart I connected the 1982 low with the 2009 low (red Bottoms Line)

The line is validated by how it acts as support at the Covid Crash low in March 2020.

I paralleled the Volmageddon Top in January 2018 off the Bottoms Line which gave the  2021-2022 top.

Notably, price could extend considerably for a third touch of the red Tops Line.

This is some logic in thinking that is viable:  I paralleled another Tops Line (black) from the 2007 top and it roughly intersects with the red Tops Line substantially higher.

That said I have a square-out and Fibonacci projection at 40,600.

Be that as it may, there is a Rising Wedge in progress whether the top is here, or at 40,000 region or meaningfully higher.

Breakage below the purple rising trendline makes the conversation moot.

It’s done. The initial drop should test the red Bottoms Line around 26,000.

Looking back to 1982, we connected that low with the 2002 low. Breakage preceded the crash of 2008.

Consequently, we cannot underestimate breakage both below the rising purple trendline or the red Bottoms Line. Violating the red Bottoms Line opens the door to a 50% decline from the break point down to the 11,000 – 12000 region, the year 2000 top.

Let’s take a look at the SPX arithmetic.

The chart shows a trend channel (black) that is a Rembrandt tying together the all the major lows since 2009 that parallels a Tops Line from the bull market top in 2000.

The Tops Line hits the January 2022.

Price has risen to test this major channel again.

The presumption is a meaningful correction is on the table.

Clearly, a drop below the 4818 January 2022  peak warrants caution…especially if it happens soon as in March/April as it would trigger a big picture monthly Soup Nazi sell signal (a false breakout signal).

That would open the door to the 4607 July 2023 high.

The July 2023 top is 4607.. We will drill down to determine whether that kind of a drop is in progress

If we start down with authority, if we turn the 3 Day Chart down, and, if we drop below last weeks low and the 20 day moving average in the 4900-4920 level.

Last Tuesday the SPX produced a large Breakaway Gap.

It looks like Friday it ran up to kiss Phil D Gap goodbye. Downside follow thru below the bottom of the gap at 4971 that sticks raises a caution flag.

Below the 20 day moving average is a red flag.

Since the surge in late Oct 2023, the SPX has only traded below its 20 day ma twice.

Each instance was like a ball under water.

The first undercut the 20 day ma for 2 days. The second undercut the 20 day for 1 day.

Breakage below the 20 day ma that sees downside follow thru in time and price and we’re going downtown.

Where is downtown?

Well we’ve walked through how we arrived at a 5030-5040 SPX target since mid-January.

One reason being the Square of 9 Wheel.

504 squares Feb 12 where the SPX left a signal reversal bar.

Let’s look at a logarithmic SPX.

I connected the 1982 low and the November 2008 Primnary Bottom and then paralleled a line off the 2007 top (blue).

This ties to the January 2022 top.

I connected the 2000 top to the 2022 top (red Tops Line) and paralleled it off the 2008 Primary Bottom.

This red Bottoms Line will be important going forward. Currently it ties to around 1700 SPX.

It’s moving up but you can see that the door is open for a significant drop.

For that significant drop to get going the SPX need to break the 4300 region, the magenta trend line.

That opens the door to the black Bottoms Line which connects the 2009 low and the March 2020 low. This is the Maginot Line which currently resides just below the October 2022 low of 3500.
The line is rising.

Another reason this bottom rail of the black channel is crucial is because it parallels the black Tops Line which originates at the 1982 low and hits the 2002/2003 low, defines the crash pivot in 2008 AND nails the January 2022 top.

We need to keep our eye on the bottom black channel line going forward.

I expect it to be hit.

One take away from this logarithmic view of the SPX is that while there may be a double top on the table, there is no real melt-up.

Does there need to be one?

We must respect the congruence of trendlines at the 20022 top that suggest the current rally above that 4818 level is an double-top/overshoot.

Wednesday we get NVDA’s earnings print.

It’s discounted the second coming.

It’s up 50% since last quarter’s earnings surpassing both GOOGL and AMZN in market cap.

NVDA struck a closing low of 392.30 on October 31, 2023

Checking a Square of 9 Wheel shows that 392/393 squares the recent 746 high last Monday.

Of course NVDA has rocketed through many square-outs as it’s nearly doubled in the last 3 ½ months.

That said, the 108 October 2022 low is 180 degrees straight across and opposite 749, a fraction from the 746 high given the price of the stock.

As well, NVDA left 3 Topping Tails last week. This sets up a potential Charlie’s Angels sell signal…3 ‘tails’ in close proximity.

On each day the stock runs up but fades closing near session lows  leaving a tail.

A weekly NVDA shows this is the 7th week since its Rule of 4 Breakout in early January.

7 is the number of time and panic.

Could NVDA drop to back test the recent breakout from the 502 region?

Interestingly 502 vibrates off February 21st, the day NVDA reports.

As well, 502 is roughly opposite the 746 region.

Speculators get in the biggest car and put the pedal to the metal.

But  often times earnings prove to be a speed bump.

And when you’re traveling over 100 mph, a speed bump can cause a crash.

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