The market is like the weather, it changes often. The market’s fickle nature is partly why stocks often lead to losses for retail investors. By going “all-in’ or “all-out,” individual investors can often be overexposed to the sudden changes the market brings. This is especially true when the market has treated investors well as it creates a sense of security — or worse, complacency.
Our site is unique in that we provide active management. This has helped us outperform across four audit periods. Our stance is the weather will always change — from good times to bad times, and from bad times to good times. Therefore, we are not over exposed in either direction.
An example of this is Nvidia, our largest position. As the allocation grew well beyond 10%, we took gains. Even after taking gains, the company is currently at a 17% allocation. In May and June, I stated that our firm was not buying Nvidia right now. Well, similar to the weather, this has changed. My firm bought a small tranche of Nvidia yesterday for $410. This tranche will come with a stop, meaning if the stock sells off, we will close this 2% tranche while hedging the 15% original position.
Our Current Nvidia Trade:
With the cash we raised throughout 2022, NVDA was the primary target of deploying some of this cash once our analysis signaled a bottom was in place. The below is a real-time trade notification we sent to our members on the October 13th.
The above alert was 1 of 9 alerts we sent out from 2021–2022 to buy NVDA below $200. However, since February of 2023, we have been systematically taking gains at key levels based on technical and macro warnings. Even with logging sizable wins while raising cash, it in the top position in 2023.
In our pre-earnings buy-plan for NVDA, we stated that “It is our belief that NVDA is setting up for a sizable pullback, which we believe will open the door for better long-term entries.” Though we do believe that lower levels will manifest in time, the recent earnings report moved forward expectations regarding AI, which is showing up in the price action. We have been discussing that Nvidia will be an AI leader for years with an allocation to match, yet predicting the exact day and month the market would finally price in this thesis is impossible to predict (and timing to this level is not necessary when holding a large longer-term position)
Regarding price, we work in probabilities, and when the market changes, so do we. The key to NVDA today is the large gap from their earnings report. This gap is either a breakaway gap, or an exhaustion gap. If it is a breakaway gap, which is represented by our red count below, then it is the halfway point in this push higher. On the other hand, if price breaks below $340, likely on some type of “event,” then the gap is an exhaustion gap, and will mark a larger top. This is represented by our blue count.
The $405 — $395 region will likely continue to act as strong support for the red count. This is where we added back in anticipation for a ~38% push higher. Our stop for this move will be a break below the $340 critical support region, which is ~14% lower than our entry.
Unlike many, we do not believe AI is a bubble, nor do we think the valuations in some of these names is stretched, as many believe. What does concern us regarding possible “events” are: 1) geo-political tensions forcing a ban of selling NVDA’s chips to China — which Beth spoke about in May with Bloomberg Asia; 2) the inevitable recession that will likely start to be priced into equities in Q4/Q1, but could get pushed forward due to an unforeseen event.
Because of these risks, we are buying with an exit plan for any new entries. It is our belief, based on the economic data, that a recession is a more likely than not for the US economy. However, based on current projections on timing, we could see a continued push in AI leadership through year-end. This is what we are further positioning our portfolio for, with the realization that we could top out sooner than anticipated.
The I/O Fund has been beating the drum about AI for 5 years. Now that it is here, we are targeting choice mid-cap to mega-cap names in the coming pullback. Once this exuberance runs its course, and the market gives up on AI, we will be buying the dip for this once-in-a-lifetime tech trend that is just starting. Join us the week following the holiday, Thursday, 7/13, at 4:30 EST where we will go over the specific AI stocks we are targeting. We will provide the macro backdrop, along with entry prices.