Before diving into this analysis, let's pause and consider a highly pressing question: Can the major equity benchmarks move significantly higher in July without Nvidia? The intuitive answer might be "no" given Nvidia's phenomenal performance, but let's dig a bit deeper.
We'll explore why I believe the answer is "yes." We'll also delve into the roles of some other top-performing names like Super Micro Computer and the importance of breadth conditions as we move into one of the seasonally strongest months of the year.
Nvidia and SMCI have both had impressive runs this year. Super Micro Computer, for instance, saw gains of almost 200% year-to-date, and Nvidia wasn't far behind, up 150%. These are incredible numbers by any measure, but neither stock is indispensable to the broader market's upward trajectory. Even as these stocks pull back from their all-time highs, the S&P 500 is testing new peaks.
Now, you might assume that such stellar performers would continue to lead the charge, right? Well, not so fast. The reality is that many top-performing names have shown signs of weakness. For instance, although Super Micro Computer made its all-time high in March, it has pulled back since then. Similarly, Nvidia experienced a rough couple of weeks recently, shedding about 17% from its peak over just a few days. This volatility underscores that even top names can face significant pullbacks.
So, how do we make sense of a market where the big guns are faltering but benchmarks continue to rise?
The answer lies in the broader breadth conditions. While long-term breadth indicators like the McClellan Summation Index remain bullish, there's a mixed picture in the short term. Approximately 70% of S&P 500 members are above their 200-day moving averages, indicating a general primary uptrend. However, the percentage of stocks above their 50-day moving averages is essentially a coin flip at around 50%. This dichotomy reveals a market that is at once robust and fragile, presenting both opportunities and risks.
What should you do in such a mixed environment? My advice is to stick with strength. Focus on stocks that are still trending upward and maintain their constructive patterns. As you assess market conditions going into July, it's essential to keep an eye on three leading mega-cap names. I call these the MAG stocks: Meta, Amazon, and Alphabet.
Meta
Meta has had its ups and downs but hasn't yet broken its highs from Q1 2024. The stock tested its peak around $525 in early March and retested it in April, but it hasn't broken through. The question for Meta in July is simple: Can it break above $525 and sustain that level? It’s not enough to flirt with resistance; Meta needs a decisive and sustained breakout to fuel further gains.
Amazon
Amazon presents an optimistic picture. It had a strong run through April 2024, consolidated around $190, and then broke out. However, the real test will be whether Amazon can hold above the $190 level. If it can, this could signal a sustainable uptrend.
Alphabet
Alphabet, or Google, stands out for its consistent performance, much like Eli Lilly. The key for Alphabet is to continue making new all-time highs and higher lows. This consistency is critical for maintaining investor confidence and driving the stock higher. Watching its RSI levels above 50 will give additional assurance of its bullish momentum.
To wrap up, the S&P 500 can indeed move higher without the sole reliance on Nvidia. The key lies in a diversified approach, focusing on other strong performers and analyzing breadth conditions. Do you agree with my assessment of the MAG stocks as bellwethers for the market in July? Let me know in the comments below, and share which of these stocks you think has the best potential.
RR#6,
Dave
Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.
The author does not have a position in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.