We come to a similar conclusion after analyzing the MACD
The Moving Average Convergence/Divergence (MACD) indicator reflects changes in a price trend’s strength, direction, momentum and duration. Traders use this tool by analyzing the location of the MACD line relative to its signal line.
At its most basic interpretation, if the MACD crosses above the signal line, it’s considered a bullish crossover, and potentially a buy signal. The opposite is true as well.
Consideration is also given to whether the MACD and signal line are trading above or below the zero line. The farther the MACD and signal line are from zero, the more stretched prices are in that direction.
Below, you can see how a bullish crossover from the beginning of the month is powering this move.
Also, notice Luke’s point: the MACD line (in black) is far above its signal line (in red).
While this does suggest the S&P is a little stretched, you’ll see that the overall MACD level remains well beneath its highest levels from earlier this year.
Here’s Luke’s bottom line:
Things are a bit topsy right now. Don’t be surprised if we get a little pullback over the next few days.
If we do, buy that dip with confidence. Stocks will shoot higher into July. Let’s make as much as possible in this rally!
But with stocks at all-time highs, do we need to be more cautious?
This used to be my concern.
The fear was: “We’re in thin air up here. It feels like heightened risk for a big pullback.” But a study of market history tells us such a fear usually isn’t warranted.
William O’Neil, who founded Investor’s Business Daily and created the very popular swing-trading system known as CANSLIM, had a quote about this:
It is one of the great paradoxes of the stock market that what seems too high usually goes higher and what seems too low usually goes lower.
My friend Meb Faber, the CEO of Cambria Investments, is a widely respected quant analyst. Here’s his take:
Is buying stocks at an all-time high a good idea?
No, it’s not a good idea, which should surprise no one.
The fact that it is a GREAT idea, well, that should surprise everyone.
Meb detailed the results of a back-test he ran that had two rules: remain in stocks if they’re trading at all-time highs at the end of the month. If they’re not at all-time highs, then move into to government bonds.
Here’s the conclusion:
It turns out, it’s a pretty damn good strategy. Better returns than just stocks, lower volatility, and WAY lower drawdowns...
It’s an acknowledgement that all-time highs are nothing to be afraid of.
Put it altogether and we echo Luke’s takeaway: Though we might be in for some short-term consolidation and/or profit-taking, a wider analysis suggests more gains as we move into summer.
Now, this isn’t a green light to buy everything – in fact, legendary investor Louis Navellier just sounded an alarm that surprised me
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Louis is one of the early pioneers of using predictive algorithms to scour the markets for quantitatively strong stocks. Forbes even named him the “King of Quants.”
As a quantitative investor, he has strict investment rules that are rooted in cold, impartial numbers. When these rules trigger a buy, he buys. When they trigger a sell, he sells. It’s a complex system to build, but a pretty simple one to trade by.
Louis’ quant system moved his subscribers into top-tier AI-related stocks. For example, Louis’ algorithms flagged Nvidia in 2019, which resulted in his Growth Investor subscribers being up 2,143% as I write Thursday morning.
But Louis recently warned investors to be careful about froth he’s seeing in the AI sector:
The fact of the matter is NVIDIA dominates the AI industry, so it’s no surprise that it continues to boast stunning fundamentals (and clearly has the best fundamentals out of all the Magnificent Seven stocks). And thanks to those fundamentals, I am confident that NVIDIA will one day become a $1,000 stock as AI continues to innovate and the AI industry grows.
However, given the hype surrounding AI, I am also deeply worried that folks are falling into the same trap they fell into during the dot-com boom of the 1990s.
Back in the 1990s, Wall Street and the mainstream media pushed the idea that the Internet was such a game-changing technology that the old rules about valuing stocks had to be thrown out the window.
We’re seeing the same situation play out with AI.
So, I predict that the speculative frenzy around AI is going to come crashing down just like every frenzy before it. And when that crash happens… folks invested in the wrong AI stocks will be left holding the bag.
As always, Louis’ dividing line for stocks – in this case, AI stocks – is fundamental strength
If you want help separating the AI companies that are fundamentally strong from the hype-based AI imposters Louis is concerned about, I’ll point you toward his free Portfolio Grader tool.
Louis has codified much of his proprietary quant-based market system, and now offers it to the investment community through his Portfolio Grader.
Think of it as a diagnostic that gives you an instant snapshot of a stock’s financial strength. It focuses the same eight metrics that drive Louis’ stock selection process for all his premium investment services.
To illustrate, we’ll compare Nvidia to a few popular, smaller-cap AI plays: C3.ai, BigBear.ai, SoundHound AI, and Lemonade.
If you’re looking to invest in just one of these stocks, Louis’ Portfolio Grader makes your decision pretty easy…
If you’d like even more of Louis’ help in avoiding the AI stocks most likely to hurt your portfolio, he’s put together a research video.
From Louis:
I’m issuing an urgent warning about the AI “losers,” that won’t survive – and how you can find the AI trophy stocks (like NVIDIA) that can become the cornerstone of your portfolio for the next decade.
Go here to learn more about my shocking bearish AI prediction right now.
Wrapping up
It looks like after a brief pullback, this market is going to run, so let’s not fight it.
Mind your stop-losses and position sizes in case we’re thrown any curveballs, but until market’s big-picture direction changes, the trend is our friend.
Just be careful about your AI plays. If Louis is right, lots of investors will end up getting burned.
Have a good evening,
Jeff Remsburg
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