The Nvidia led AI market rally just wouldn’t die!  The old economy DOW index finally joined the game after the good employment data was released last Friday.  Now the DOW and small cap Russell 2000 are waking up to the AI rally.  The synchronized rally has more gas left in the tank!  From seasonal cycle perspective, the current rally should last until late August to October.  The current seasonal cycle started from October 2022, it survived the seventh monthly bar in May (sell in May and go away seasonal pattern).  So now we are looking at the seasonal cycle low to high phase to last for about 10 months, which gets us to August.  Coincidentally, the Jackson Hole Wyoming 2023 Economic Policy Symposium will be held August 24-26.  So between now and late August, we don’t see anything other than black swan event to upset this AI led rally.  The June Fed meeting will create some volatility, but we don’t expect a trend change in June.

Yes, the economy is weakening as Dollar General is not doing well with the low end goods consumers.  But Lululemon is doing fabulous as high end goods consumers are still buying pricey yoga pants.  The Lululemon type of consumers are powering the economy right now and that’s why the Q1 mega tech companies earnings were not as bad as feared.   During the regional banking crisis, the Fed also injected quite a lot of money into the system to save the banks.  So combined with liquidity, not so bad earnings and the exciting AI craze, we end up with a powerful rally which hurt a lot of shorts.

This rally is hated because the fundamentals are weakening, yet the financial markets don’t care.  The investors in recession camp are not wrong to call for a recession considering the seismic changes in monetary policies in a very short period of time, but they always call it too soon.  People were forecasting recession in 2006 and the recession finally arrived in 2008.  Very few people can forecast a recession precisely.  People who forecast recession too soon are often frustrated and ridiculed because an AI inspired rally would make them look like an idiot.

We don’t believe that this AI led rally will start a new bull market from here.  The Fed didn’t even finish the rate hiking cycle yet.  A true bull market will only start after the Fed starts or finishes cutting interest rates.  We are far away from that.  So we view this AI led rally as counter economic trend rally.  Yes, this stock market rally is real, but it is against a weakening economic backdrop.  Therefore we should be mindful about the durability of this rally.

Below is the S&P 500 weekly chart.

It is 11 weeks into current weekly cycle.  It would be a very extended weekly cycle if the rally goes into late August.  But an extended weekly cycle is possible due to the strong seasonal effects.  Typically a weekly cycle is under seasonal cycle influence, that’s why small time frame cycles frequently extend or contract to conform to bigger time frame cycles.  A seasonal cycle high typically is the high of the year and a seasonal cycle low can be the low of the year.  In the current seasonal cycle that started in October 2022, we will get a seasonal high, but not a seasonal low in 2023.

The 61.8% retracement is 4311 and also it’s very close to the August 2022 high level at 4325.  This is the near term resistance to watch for.

Nvidia is the king of the AI hardware right now.  But a new comer  Crebras  https://www.cerebras.net/ has a different architect and has built a even more powerful system to power AI.  OpenAI founder Sam Altman is one of the investors in Crebras.  So when Crebras goes public, you’ll know that a real AI bull market has arrived.

Nvidia is not just a hardware company.  Nvidia’s omniverse is very impressive.  Even with the hardware competition heating up, Nvidia still has a very long runway in the coming decade.

Yes, AI will make us a lot of money in the next 10 years! Palantir just demoed its AIP and it’s very impressive.  Palantir has a very different foundational data architect that can connect with enterprise specific large language models with ease.  And they are deploying AIP in live action now.  The competitors perhaps are a few year behind.  If you plan to hold Palantir for the long term, you should ignore the short term noise.