Stock Market Melting Up Due to AI

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Market News and Short-Term Predictions

We are having a sustained rally in names like NVDA, MSFT, GOOGL, and AMD. What do all of these names have in common? AI baby.

Don't get me wrong, I love the surge in these stocks as they are some of my larger positions, but the question must be asked if this rally is sustainable.

Just look at this glorious chart of NVDA who hasn't had many down ticks and has rallied +125% and headed back to all-time highs which haven't been seen since 2021. I actually added a little bit to semiconductors in 2022 when they were beaten down, but it is starting to feel a bit like 2021 when the metaverse and crypto were the reason NVDA was going crazy. I trimmed a little bit of my semi-conductors a month back, but continue to hold a majority of the positions in NVDA/AMD/TSM. I prefer to trim a little from winners and let them ride vs. only adding to my losers. Adding up here to semiconductors doesn't feel like the best value.

Regardless you can tell the market is still trying to figure out how fast and revolutionary AI will impact businesses and society as a whole. Based on NVDA it looks like exponential growth is starting to be priced in!

Outside of AI names continuing to push the market higher, there was news from the white house that they are confident they will get the debt ceiling raised. I don't think I need to spell out what would happen if the US defaulted on its debt. It would be bad. Very bad. So they won't let that happen :)

“I’m confident that we’ll get the agreement on the budget and that America will not default,” Biden said Wednesday at the White House, shortly before departing to Hiroshima, Japan for a Group of Seven leaders summit.

Congress has till the end of the month to figure it out, so I expect bickering back and forth for the next couple of weeks before they inevitably sign a bill to raise the debt ceiling. With the SPY finally breaching the $415 wall on SPY, I would say the market also doesn't think the debt ceiling is a real issue.

As I called out last week, the SPY was coiling for a bigger move for the past couple of weeks. This may be a start to a blow-off top as a ton of shorts may be forced to cover after they failed to push SPY below $405 twice. RSI is still below 70 and VIX is at 16. I could see the market pushing to $425 before losing the larger momentum and facing resistance.

Lessons to Be Learned

Don't short AI momentum. I am on Fintwit (finance on Twitter) and continue to see bears that have called for a crash for stocks like NVDA. True AI is a revolutionary technology change and I wouldn't try to short AI stocks. AI is not the same as the crypto craze or metaverse craze because the applications are more abundant. Also if true exponential growth is achieved no one will care that the current P/E of NVDA is at 100+.

I'm not saying to throw valuation out the window, but I would say shorting these names is a dangerous game. Avoidance is probably better than stepping in front of that freight train.

Options Trading Portfolio

Closing Trades

I closed out three winning trades this week for a total profit of $267 (two were credit call spreads and one was an iron condor). Most of the gain came from the market trading sideways for the past month and VIX slowly declining.

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