Broad Market
The I/O Fund uses many tools to manage risk in our all-tech portfolio. One of these methods is monitoring broad markets to gauge the health of a trend. For example, in early January and February, we kept beating the drum with our Advanced members that the S&P 500 is making a higher high without most of the Mag 7, the NASDAQ-100, Small Caps, and Semiconductors. Divergences like this tend to signal weakness ahead.
We used this type of analysis to warn our Advanced members that we were raising high levels of cash, as well as hedging our portfolio at the first sign of volatility. This allowed us to mitigate the drawdown over the last month, while having cash on hand to buy some great AI stocks at beaten down levels.
While we reserve regular broad market updates and webinars for the Advanced tier, we do at times open our broad market analysis to all tiers when we believe that we are at a potential inflection point.
Regarding the broad market, we think that we are due for a bounce over the coming weeks for a few reasons. The primary reason is sentiment. The AAII is a weekly survey that dates to the 1970s. Every week they ask retail investors where they think the market will be in the future. It has a remarkable record of gauging sentiment as a contrarian indicator.
Over the last 5 weeks, we have seen some of the most bearish consecutive readings in the survey’s history. The percentage of bearish readings were 100% or 99% for the first 4 weeks, with a 97% print this week. This level of consecutive, extreme bearish sentiment rivals the COVID lows, the 2022 lows and even the 2009 lows.
Furthermore, short interest on US stocks has risen to the highest level since the COVID panic. Not only is sentiment abysmal right now, but it appears that investors are now loading onto the short side of the market.
We are not making predications, only presenting sentiment extremes, which historically lead to an unwind. The market tends to move in the direction that will hurt the most people, and right now that level is up. This data supports higher level from here; however, we are also prepared in case this bounce does not materialize.
Regarding the S&P 500, the line in the sand is 5400. If any further weakness holds this level, I think it is reasonable to expect 5800 – 6050 in SPX over the coming weeks. If this bounce can break above 6050, then the odds increase that we can see 6300 in the coming weeks.
Our game plan is to continue to raise cash, and layer back into our hedges on any additional strength. Even if we see a push to 6300, we will follow this plan, as this will likely be the final swing before a relatively large bout of volatility is realized, if it hasn’t already started.
If the market decides to break below 5400 in direct fashion without a bounce, I think it is reasonable to expect a more direct drop to 5200 – 4800. So, while contrarian sentiment readings support a short covering rally in coming weeks, this does not mean that this will manifest. Hopefully, the above levels can help you manage risk as the market chooses a direction.
If you are interested in a day-by-day update on both broad market risk, and how the I/O Fund manages market volatility in real-time, please consider our Advanced Tier. We are offering a 30% discount to all Essentials Members – please contact support@io-fund.com for details.. We are offering a 30% discount to all Essentials Members – please contact support@io-fund.com for detailssupport@io-fund.com for details.
Nvidia (NVDA)
The evidence continues to mount that NVDA could see a move to sub-$100 in the coming weeks. While the next move will likely be a bounce to $128 – $135, this appears to be a correction in a larger move lower. My final target for NVDA is $95 – $83, at which we will start accumulating again.
For this to manifest, we need to see any further strength hold under $135 and then turn lower. If we are going to avoid a lower low, any further strength cannot exceed over $135. Over this level will start supporting a push to new highs in the coming months.
Let’s say we do not see a bigger bounce from here. Then a sustained break below $110.90 suggests that we are heading directly to the targets zone from here.
Taiwan Semiconductor (TSM)
TSM ‘s drop has gone lower than I wanted to see. This does not mean that we can’t see a push to new highs from here, but it does increase the risk that the next bounce will be a lower high within a larger correction.
Regarding the next bounce, note how TSM is making a new low with less volume and less momentum. This appears to be the final push in this leg of the correction. The coming bounce should get us into the $189 – $203 region. If we are going to break to new highs, we need to push over the $205 region.
The pattern that has unfolded since the August 2024 low is quite weak and overlapping. Because of this, if we do see a push to new highs, it would likely be the final swing higher before a larger correction unfolds. So, any additional strength from here should be properly risk managed, considering.
Bitcoin (BTCUSD)
We began accumulating Bitcoin in early 2023. Since then, we have offered 12 buy alerts ranging from $26,000 – $62,000. However, since November of last year, we announced that we are going to begin to take gains and sold more than half of our position between $80,500 – $104,000. We recently added some of this back to play the possible next swing higher.
Bitcoin’s pattern appears to be incomplete and suggests that one more swing to the $120,000+ region is the most likely. The current bounce that we are seeing should take us to $96,000 – $101,000. Once we get to this region, we will need to be on guard for a reversal. If we do reverse from this zone, we could see a larger drop into the $60,000 region before finding a low. If we are going to push to new highs, we must take out $101,000 with expanding volume.
Please note: The I/O Fund conducts research and draws conclusions for the Fund’s positions. We then share that information with our readers. This is not a guarantee of a stock’s performance. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis.
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