A Tree Falls in the Woods… No One Cares

the fed

What happens if a tree falls in the woods… and a bear is trying to go to the bathroom… and no one cares? I’m not good at “old adages.” All I can do is react to “new” data. I have read the Federal Reserve’s minutes from the July meeting. And, apparently, I’m using the wrong scotch, because nothing makes sense. The Fed effectively says that it plans to be aggressive with interest rates because inflation hasn’t been tamed. 

But then the Fed says that interest rates can slow down the economy… and therefore, it will rely on data to make future decisions. I have been looking at these minutes like my dog does when I play a YouTube video of another dog barking. Utter confusion. But I’ll give you my KEY takeaways today… and that should help make sense of this situation.

Two Key Points From The Fed

The market had a nice short-term rally in the first 20 minutes of the Fed’s release at 2 pm. From there, nothing effectively happened. But the odds of a 50-point rate hike jumped from 50% to more than 63.5%. Just a month ago, the odds of a 50-point hike were 37%. 

I talked to one fund manager today – asking him to help me uncork the right analysis – and he simply said… “It’s going to be a 50-point hike in September…” But… don’t discount the Fed going to 25 points. The idea of a 25-point hike in September, and only 25 points, gave me the closest thing to an ice-cream headache. Inflation is bad… it’s not improving, and energy prices are likely heading higher in the fourth quarter. 

But we could see this sort of accommodation… just because. The only thing that matters right now is that momentum is Green. I’m not shifting any positions because momentum tells me we’re in extremely strong conditions. In addition, buying has outweighed selling… and it could take weeks – not days – to unwind positions to a point that momentum would fall so hard that we’d see a repeat of the selloffs from April or June.

We’re not just overbought – we’re so overbought that funds wouldn’t be able to unload all of their positions fast enough. We’re more likely in for a repeat of November 2021’s sideways selloff into January… I’ll let you know when momentum shifts… be patient.

The Situation with Nvidia

My friend Scott is a professional in the semiconductor world. He knows it better than me. Today, we talked about the news that Bank of America (BAC) predicted a big leg down for semiconductor designer NVIDIA (NVDA) next week. The analyst at the bank sees a possible downgrade here because of the company’s most recent outlook. It might have to cut prices and clear out its inventory in order to help promote its newest pipeline of products. That could hammer guidance. 

Now, NVIDIA is a leader in its space. Its processing units were part of the shortage that we saw in the new XBOXs and Playstation 5s. Demand has plunged as a result of the gaming problems, and it was gaming supply in order to goose demand. 

As Scott explained, people waited in line for hours to get access to some of these semiconductor cards. Demand was extremely high for gaming and cryptocurrency mining when prices kept elevating. But now, the entire thing is going sideways, and prices are cratering to clear units. Look at these price cuts…

We are talking 40% to 50% cuts in prices… and this stock could become a huge loser if and when momentum goes negative. Add it to your Watchlist, and then watch it fall when momentum turns. It could be a VERY long fall (and Autumn too) for NVDA.

Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.
Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.

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