Momentum Monday - The AI Rally Accelerates

Last week started with a quick shakeout. QQQ pulled back to its 10-day EMA. Then, Nvidia reported earnings and jump-started a massive rally. This time, the bull run didn’t impact only the usual suspects – NVDA, AMD, MSFT, GOOGL, META, AI, SMCI, SYM but it stretched into many more names – AVGO, ADBE, AMZN, TSLA, COHR, ANET, TEAM, etc. The entire tech sector is in a strong uptrend. The rest of the market is lagging behind. The most interesting part about the tech power is that it is happening on the back of rising interest rates and the U.S. Dollar. The 1-month T-bills are yielding 6%. Historically, this is not considered an easy-money market environment. And yet, tech stocks can’t stop going higher.

In January when most stocks were going up, I joked that either the market believes that inflation is coming down or A.I. will have a massive impact on the economy. I didn’t really believe the latter at the time. My joke turned out to be a reality. There’s a chance that A.I. will influence our lives to the same degree that the Internet did in the late 90s. If this is true, we are in just the first or second inning of the action. The bulk of the moves, which will surely feel like irrational exuberance to many, is yet to come. Don’t get me wrong – there will be some quick, random, and violent pullbacks in A.I.-related names that will shake many people out but the dips are likely to get bought eventually. Those dips are not likely to come when almost everyone is expecting them. Many hoped that Nvidia will pull back after earnings so they can jump on the A.I. train. You know what happened. NVDA gapped up 30%, the biggest post-earnings gap for a mega-cap stock. Those dips will come when you least expect them and you are completely confident in the invincibility of the A.I. story. They will be so scary that you will question the A.I. narrative. This will be the time when the best risk-reward entry points will appear.