The action in the technology section is extremely frothy on Tuesday morning. CNBC has constant coverage of Nvidia (NVDA) as it hits a market cap of $1 trillion, and the Nasdaq 100 (QQQ) continues to outperform the other indexes. The action is so lopsided that the phrase "blow-off top" is being used by frustrated bears.
Once again, it is a tale of two markets. Big-cap technology is causing bull market celebration while breadth on the S&P 500 is even, and there is weakness in most other sectors such as financial, healthcare, consumer defense, energy, industrials, etc.
As I discussed in my opening column, this is a classic "sell the news" setup but the frenzy in everything AI is distorting the action as traders have little choice but to chase the theme if they want to be in the biggest movers. It is downright bubbly, but that doesn't mean it won't last long.
Consumer sentiment came in higher than expected, but that is seeing a negative response and is closing the opening gap in the S&P 500 and pushing breadth to even.
The biggest problem that aggressive traders face in this market is that the pockets of speculative action are so narrow. There are very few small-cap stock names with exposure to AI, so almost all the action is in a few well-known names. I only see about two dozen names that are up more than 10% despite the frenzied buying in some QQQ names.
My "stock of the week" is a quantum computer play that has AI exposure. IonQ, Inc (IONQ) offers high-powered computing through cloud providers like Amazon's (AMZN) AWS. Some AI applications require this sort of computing power, and that has made IONQ one of the few small-cap names that are benefiting from the AI theme.
There are lots of folks that believe that the market is at a key turning point due to a combination of the IA frenzy and a "sell the news" setup on a debt ceiling deal. There is a macro concern that liquidity may now start to dry up over the next six months as Treasury raises the funds that it couldn't raise previously.
I'd love to be a more aggressive buyer, but we still have this annoyingly narrow market with just a few names like NVDA, creating the false impression that this is a booming bull market.
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