After last week's 4.8% gain in the Invesco QQQ Trust (QQQ) and gains of 2.5% in the SPDR S&P 500 ETF (SPY) and iShares Russell 2000 ETF (IWM) , it feels like we've entered the stage of the rally where anyone managing money professionally feels obligated to hold their nose and buy something. As a nonprofessional trader and investor, I'm under zero pressure to put money to work. And at a time like this, that's a godsend.
This month, stocks such as Nvidia (NVDA) and Tesla (TSLA) are up 40% to 45%. A few short weeks ago, the only narrative I heard about these two companies was how they had further to fall. Today, both stocks have 14-period Relative Strength Index readings between 87 and 91.75. While everyone has their reason for investing in a specific stock, with TSLA approaching $200 and Nvidia close to testing resistance near $210, I have no interest in buying either of these stocks.
I'm finding dozens of charts like the one above of NVDA. It's great to see NVDA pushing through last summer's swing highs, but with an RSI reading in the high 80s and clear resistance around $210, buying the stock today doesn't seem like a great risk/reward.
Last Friday, Rev Shark noted that several analysts predicted fourth-quarter earnings would be weak, catalyzing the shift of the market's narrative from inflation to recession. Though many don't want to admit it after the recent rally, I, too, expected underwhelming earnings and guidance to weigh on stocks. But clearly, that has not been the case.
If you're a short-term trader, it shouldn't be too challenging to pivot based on how the market behaves daily.
But if you're a longer-term investor, you may need to consider whether you want to deploy a significant portion of your capital while the Fed is raising rates, earnings are flat to disappointing, and the prevailing view is that a recession of some variety is still a high probability. Maybe I'm being a chicken, but aside from a few select industries such as financials, metals and energy, I'm not deploying significant chunks of long-term capital.
Oh, and if you think navigating last week's rally was difficult, wait for the push above 4,100 on the S&P 500. While I don't think we'll clear last August's high near 4,300, the path of maximum frustration over the near term is higher.
