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'Warning Flags': Expert Says Nvidia In 'Bubble-ish Territory,' Points To Potential Market Pullback
Benzinga
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6/18/2024
Piper Sandler MD Craig Johnson joined PreMarket Prep on Monday, cautioning investors on market "warning flags." Johnson noted several discouraging market indicators, asserting that there is "nothing wrong with taking profits."
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00:00
All right, Craig Johnson, CFA, CMT, Managing Director, Chief Market Technician at Piper
00:07
Sandler.
00:08
Craig, I know you joined us early here.
00:11
You are officially in charge of just reeling us in this morning.
00:18
In terms of this market, we got to back up and talk big picture, okay?
00:21
Because Dennis, I'm not going to really walk you off the ledge because I'm sort of at the
00:26
ledge, okay?
00:27
Oh, crap.
00:28
We're in the same spot.
00:30
When I look at this market, there's clear warning flags out there for me, okay?
00:35
All this work that we've done at Piper for years, looking at breadth indicators, looking
00:40
at AD lines at the sector level, looking at all these different pieces.
00:44
I've got my 26-week new highs indicator, Dennis.
00:47
It's in a sell position, meaning that it has contracted over 15% from the recent highs.
00:54
I also look at our 40-week technique, which measures how many stocks are above a simple
00:59
40-week moving average.
01:01
Again, that is also just last week flipped into a sell position.
01:06
Do you have those handy, Craig?
01:08
I know you got a lot going on and I didn't ask you beforehand, but I was just wondering
01:12
if you could illustrate it.
01:14
If not, that's fine, too.
01:16
I just wonder.
01:17
Sometimes a picture is not good.
01:19
Let me throw some of these out here for you, okay?
01:21
Yeah, sure.
01:22
It's green.
01:23
I'm going to go up to the beginning here so that you can see this whole entire piece of
01:27
the equation.
01:29
As we go through, this is our weekly piece.
01:31
We literally just published it within the last hour, so really pretty fresh.
01:35
Caught off the press.
01:36
Caught off the press.
01:38
One of the other indicators, and I'll hit on this one first because I have it right
01:41
here.
01:42
If I just look at this market and I look at how many of our stocks and how many of our
01:46
industry groups that we're following are in an uptrend or a downtrend, I've got more industry
01:51
groups in downtrends and uptrends.
01:55
I don't love that.
01:57
Our 40-week measures, again, how many of these stocks are in ... The 40-week measures how
02:02
many stocks are above a 40-week moving average.
02:05
When I go through and I look at this indicator right here, I'm starting to roll over.
02:11
I am basically at about a 50 and change percent reading with our 40-week.
02:15
This has been a pretty good tool to help us figure out some market timing for things.
02:22
As I look at this, it is now flipping over into a sell position.
02:26
Our new highs indicator gives us buy sell signals, has flipped over too.
02:31
We're talking about a market.
02:33
If you're buying like Dennis, you said, buying the new highs list, that's fantastic, but
02:38
there's a lot of things out there that are not working.
02:42
You got a larger percent of this market that is not working than working at this point
02:48
in time.
02:49
Again, that's the bigger challenge for me.
02:51
I'm not going to ignore these breadth indicators.
02:53
We've looked at them for a long time.
02:55
In fact, when I think about the relative performance of the S&P, when you do have this 40-week
03:01
slip into a sell signal, your relative performance is not that great in coming weeks.
03:07
My point to people is, you got to have a warning flag out.
03:10
Be careful.
03:11
Be looking at some of these things that you want to come back and sort of avoid.
03:16
My key bullet points for people were right here as follows.
03:20
I look at this divergence.
03:22
I look at the new highs, the new lows, the 40-week.
03:25
All these are underperforming.
03:27
Where do I want to be positioned?
03:29
Well, selectively in tech, small, mid.
03:33
I'm sort of into that sort of range.
03:35
Services, those are weakening on us, but I'm seeing improving trends in some of these
03:41
industrial names, and I am seeing okay things in financials.
03:45
But when I go through and wrap this all up, I got a lot more concern today.
03:49
And you guys know how positive I've been on this market at points in time.
03:53
Now is not one of them.
03:58
So let's just take that.
03:59
Obviously, there's a lot of weak things here.
04:00
Would you be a seller of the strong things here too?
04:03
Do you get out of your invidious that eventually everything's going to roll over here or do
04:07
those stocks just keep emerging?
04:09
Because it's the tale of two markets.
04:11
I mean, the Q's are at all time highs here, seemingly up every day.
04:16
And there's obviously a dozen stocks that are really responsible for the majority of
04:20
that.
04:21
But is this a sign that maybe we're just bubblicious in these stocks and that the real economy
04:26
is trying to tell us something else, Craig?
04:29
Okay, so when I look at it, when I look at the chart of Invidio, why don't you pull it
04:33
up on your guys' screen.
04:34
Okay.
04:35
Yeah.
04:36
And I'll stop sharing here for a minute, okay?
04:39
But when you pull up a chart of Invidio, I mean, the stock is up like 140 change, 140
04:46
change percent sort of year to date, okay?
04:49
I know when I added this into our model portfolio and portfolio of the So Top Us fund that we've
04:53
got, you know, it was about a 16 fold return that we've had in it.
05:01
I don't know about you, but I don't need to be overly greedy on a stock that has clearly
05:06
gone parabolic.
05:07
It doesn't mean that it's over yet, but everybody's got the same approach out there, which is
05:12
I am going to wait until things roll over and then I'm going to sell.
05:16
Oh, I'm going to be watching this and I'll be able to get out before everybody else does.
05:20
Really doesn't work that way.
05:21
No.
05:22
Right?
05:23
When the selling starts, people don't want to sell.
05:24
They're like, oh, I'll wait for the next move up, then I'll sell.
05:27
And then they keep saying that all the way back down.
05:29
I've already taken profits on the NVIDIA.
05:31
I said 16 fold is enough.
05:34
I didn't exit the semiconductor trade.
05:36
I bought Micron MU because that's making a multi-year new high.
05:41
And I also bought Taiwan Semiconductor.
05:44
I think those two are also plays.
05:47
I was just going to say, I mean, in terms of like the scope of the drawdown, do you
05:51
think it'll be, you know, around there, 10 percent?
05:54
Or do you think we could see, I mean, even going back to like 2022 when we had the sell
05:58
off in a lot of the big tech stocks and Mag 7, I mean, some of those stocks drew down,
06:02
you know, 40, 50 percent.
06:04
You look at like Metas Charger, even NVIDIA has went, you know, down a lot.
06:08
Do you think we'll see something similar or do you think it'll be a little bit more of
06:11
a muted downturn?
06:13
You know, to the downside, it's hard to always put the exact finger on what that level is
06:18
going to be, to be completely honest with you, I've been doing this for years.
06:21
What I will tell you is, is that when you can start to see things getting bubbly, things
06:26
starting to get ahead of itself.
06:29
But in the 2000 period, I wouldn't have guessed that the drawdown would have been as large
06:34
as it was. In 2007, ahead of the great financial crisis, you can see these divergences
06:40
happening in the market. You knew something was wrong.
06:42
You knew it was time to protect capital, but you didn't know that it was going to be a
06:45
market that was going to get cut in half.
06:48
You never know how low it's ultimately going to go.
06:50
This market is so concentrated in so few stocks right now.
06:56
And you've got so many factors out there.
07:00
People have been piling into private equity for a long time and private equity isn't the
07:04
most liquid vehicle out there.
07:06
But if there are going to be capital calls or other things, you're going to have to sell
07:09
what is most liquid in front of them, which is probably going to be public equities.
07:13
So again, that could magnify the impact to the downside.
07:17
I just say to people and all your listeners, again, it's fun when the market's going up.
07:23
It is great, but it's becoming more concentrated.
07:27
It's becoming narrower.
07:28
It's a warning flag for me.
07:30
There's a lot of people I talk to that say, I'm not going to sell anything.
07:33
I don't want to pay the taxes right now, et cetera, et cetera.
07:36
And usually that kind of commentary is, you know, probably a little miss.
07:43
It's probably correct for some people, but for a lot of this, you know, it never hurts to
07:48
take a profit. And I've sold some of these stocks that have gone parabolic.
07:52
I did some of that back in March.
07:54
I'm running a 10 percent cash in the model and actually the Sotoplus fund.
07:59
And I'm probably looking to go higher than 10 percent cash.
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