Monday Takeaways: Will the Red-Hot Momentum Hit a Snag?

Shah Gilani|February 26, 2024

Greetings from Ojai, California! I’m here for The Oxford Club’s Annual Investment U Conference.

I hope to see some of you when things kick off tomorrow. Be sure to say hello.

But first… let’s get into my Monday Takeaways.

The markets again hit new highs last week… thanks in part to Nvidia’s excellent earnings report. But there was also a very technical reason for the market’s upward march.

I get into it in today’s video.

There’s a lot of hot momentum in the market… and things are looking, as I like to say, bubblicious. It’s a bit too much… too fast. Here’s where I think we’re headed next.

Plus, I share my thoughts on what could happen with this week’s core PCE numbers… and where the 10-year Treasury is headed.

It’s all in my Monday Takeaways video.

Click on the image below to watch it.

 

Transcript

Hey everybody. Shah Gilani coming to you from beautiful California… I should say beautiful and chilly California.

I’m at the Ojai Valley Inn and we’ve got the Investment U seminar this week. I’m speaking on a couple of different things. I’m looking forward to that. Hope I’ll see some of you here.

Let’s get to our takeaways for today. Well, it’s Monday. It’s 6:30… or Eastern time, 9:30. So markets just opened. Look, things are looking good. You can’t help but see what happened last week and not expect markets to have some momentum going higher. So, I think looking back, the momentum that we saw from Nvidia, which really moved everything higher, to another level, is probably going to continue. I don’t know that we can continue on forever, but I think there’s enough momentum to move things higher. It is getting a little scary.

So the takeaway from what happened with Nvidia was, it wasn’t just buying. It was really a gamma squeeze, which has to do with options. So that was a big part of it, and people are kind of looking past that and not a lot of folks understand really what’s happening with the likes of Nvidia or Advanced Micro Devices when they’re moving up like that. There’re a lot of options plays going on there. A lot of dealer hedging positioning going on there that is squeezing the stock higher as dealers options, dealer market makers, are short gamma. I’m going to be talking about that at Investment U and what’s going on with that.

So specifically, it’s moving the Nvidia price higher. So is Nvidia being valued higher because of buyers, simply buying, buying, buying, buying? To some degree, for sure. But most of what we saw last week was a gamma squeeze and dealers having to buy Nvidia to offset the calls that they sold.

Yikes, yes. So what’s the takeaway from there? Watch Nvidia. If Nvidia cools off, and now that the numbers are out, the earnings were fantastic, obviously. Maybe things will cool down and the options activity will slow down and maybe dealers will get into a positive gamma situation, which means maybe there’ll be some resistance for Nvidia to go higher.

So the takeaway is, we all got to watch Nvidia because Nvidia is the bellwether now.

This week we got a bunch of economic data this morning, today, Monday, there are five record, two- and five-year Treasury options. Record amounts being auctioned. So markets are going to have to digest that. Bond markets are a little bit jittery.

But last week, we ended the week with a 10-year at 4.25%. It had gotten up to a 4.32% yield. So saw a little bit of rally toward the end of last week. We’ll see with all the issuance coming out this week, because there’s a lot of corporate issuance coming too, a lot of Treasury and corporate issuance. Curious to see how the market’s going to absorb that. Keep an eye on the 10-year.

Takeaway there is if the 10-year yields starts to back up again and issuance as far as this week isn’t received really well, guess what? Yields are going back up. Probably break 4.32% on the high side, maybe go to 4.40%, 4.50% is possible.

So what’s the takeaway? If we go to 4.50% on the 10-year yield, I think the market sells off. We see a correction. We see something starting with profit-taking and moving into maybe hitting some stops. So we’re not there yet. It’s a function of some of the data coming out this week, the Treasury issuance, what bond yields do.

Next up, besides Treasury issuance and corporate issuance… this week we got PCE. We got core PCE coming out on Thursday. Now the expectation is for 0.4% and for annual core expectation is 2.8%. So core PCE, we know, is the Fed’s favorite measure of inflation. If those surprise to the upside significantly, that could trigger something of a stock market sell-off. I’m not talking about 5%, 10%… I’m talking about profit-taking. That could lead to other stuff. It depends on metrics and depends on how much investors are willing to take profits off the table.

Because again, things are looking good. Analysts are changing their expectations for earnings in the first quarter. They’re already late lifting them. They’re lifting the profit margins as a lot of things have gotten positive. Analysts are starting to talk more about less likely that we will have a recession.

So things are looking good, and I think consumer confidence, which we get also this week, is pretty good. If those numbers all continue to do well, as far as consumer confidence goes, again, if Treasury issuance is well-accepted.

We get a revised Q4 GDP this week also, on Thursday. I don’t think it’s supposed to change, supposed to be 3.3%. I don’t think there’s going to be much of a revision. That’s the expectation that it will be that.

So again, keeping an eye on all of the metrics, looking for the markets to do one or two things carry forward with the momentum that they created last week. If, again, all the metrics that come out this week are perceived to be positives, the the market can go higher. As much as I recognize the momentum, as much as I recognize how good things are, I do think we’re getting, what I called last week, a little bubblicious, a little bit too much of everything too quickly.

And whether or not the market will broaden out in terms of other stocks being bid up, which is starting to happen, but it needs to happen more, then this rally can likely continue, but I’m getting a little bit nervous. I’m hoping for a nice dip. There are a lot of stocks I’d like to buy, but they keep going higher. So I’m holding off.

I typically don’t chase a lot of stocks.

In hindsight, sometimes you wish you had, but I think we’re getting a little bit toppy, a little overbought. Any bad numbers this week – initial unemployment claims, if they are higher than expected, they’re expecting around 210,000, I believe is the number I saw, that’s the expectation – if for some reason initial unemployment claims come down, they’re 100,000, guess what? We’re probably going to sell off because there’s no way the Fed is going to cut if the economy continues to do really, really well.

And Fed fund futures? Last thing I’m going to say is no, guess what? They’ve finally caught up and now Fed fund futures are only pricing in three cuts this year. There were seven, six, and seven at the beginning of the year. Now they’ve become attuned to what the Fed’s been saying and now reflect the likelihood of three rate cuts this year. We may not get any depending on the economy.

This is an important week as far as metrics. It’s important week as far as the stock market, where it’s come from, where it is, and where it might go.

So we got momentum on one side… and we got maybe profit-taking on worse than expected numbers, higher PCE for example, and maybe a higher revision than the 3.3% for GDP for Q4. What if they revise it up to 4%? Wow, guess what? Market’s likely to see a little bit of selling.

I wish I had a united direction of thought on where we’re going to go, but we are going to have an interesting week.

So that’s it. Those are your takeaways for Monday. I’ll catch you guys next week. Cheers and stay safe out there.