How To Tell If The AI "Bubble" Trade Is Over.
1.) BUBBLE - If the whole AI Bubble narrative rests on the "Big Boys" and their stock prices, it is probably a good idea to know where they are trading in this cycle. Let's start with the biggest of the big in the AI Bubble narrative. That would have to be Nvidia (NVDA). Right now NVDA is still in a bullish, or upward bias, trend. That could change if it closes below $212 for three days. Why 3 days? It's just an internal rule we've used against our rate of change of price, volume and volatility framework. Next up is SpaceX (SPCX). SpaceX just announced earnings yesterday and they were really good! So good the stock gapped up on the open and closed higher +7.8% to $159.31. Right now SPCX is also bullish trend and that would not change until it breaks $135. Next is CoreWeave (CRWV). This one hasn't been playing nice in the sandbox. CoreWeave is now down -24% over the last month and -49% over the last 6 months. It has been in a bearish trend, or downward bias, since it broke trend back on Oct 8. While it has a lot of work to do to get back above trend, it also is acting like a stock where the selling is getting exhausted. Oracle (ORCL) is also an important stock in the AI Bubble Narrative. ORCL is also bearish trend and has been since June. This also is looking like a stock that is nearing exhaustion. The last one we should be aware of is Micro Technology (MU). Micron is still bullish trend, but flirting with the low end of that trend at $884. If it holds that...all good. This one also looks like it wants to start to pick up its bootstraps and move up. It's oversold here, so that tends to help stocks in neutral to bullish conditions. According to our head equity analyst, Jonathan, the last thing to consider are H100 rental rates. What is the world are those, right? Those are 5 year old Nvidia GPUs. If the rental rates start falling significantly...the AI trade is probably done. And right now, those rental rates are still rising. In fact, it's more expensive to rent compute on an H100 now than when it was initially released! So, bottom line...so far...still so good.
2.) RATES - Interesting, but maybe not too surprising based on what I've been writing about is what is happening to rates this morning. The 2YR is down to 4.73%, but still bullish trend. The 10YR is down to 5.04% and tapping the top end of its trend level. The 30YR is at 5.35% and just starting to break trend to bearish or downward bias. Why are these trend levels important? Because if they break and stay below them for 3 days, price momentum tends to shift which changes how the momentum funds play the position. Breaking that trend is the step that often moves them to sellers. Now, just because this longer dated yield is flirting with a trend break doesn't mean it's going to crash. In fact, I think these longer dated yields are near a level where I'd expect a bounce or move higher.
3.) MOVE - Bond volatility continues to be elevated, but dropping each time it nears longer term downward resistance. Yesterday, MOVE was down -5.7% to 96. It's up this morning, but still below resistance. Again, these volatility metrics are mean reverting, so spikes tend to deteriorate, which helps to push the underlying asset class higher. When VIX spikes and deteriorates, stocks drop then recover. The MOVE Index spiking like this, may be the one last oomph before really settling down. If it did, we'd likely see rates fall and bond prices rise.
