AI Revolution and NVDA: Why Tough Going May Be Ahead

"These things could get more intelligent than us"

By Elliott Wave International

The topic with all the buzz these days is Artificial Intelligence (AI) and its future.

The potential benefits include automating repetitive tasks, enhancing productivity, data analysis, assisting in medical applications -- and more.

Then there's the possible downside. Some of the major worries include the elimination of jobs, privacy violations, unclear legal regulations and the potential for AIs to go rogue as the goals of AI become misaligned with the goals of humans.

In an interview with NPR in 2023, computer scientist Geoffrey Hinton, who is known as the godfather of AI, said:

These things could get more intelligent than us and could decide to take over, and we need to worry now about how we prevent that happening.

However, right now, the mood surrounding AI is way more optimistic than pessimistic.

Just think about how investors have bid up the price of AI-related stock Nvidia Corp., which has a market capitalization of around $2 trillion. That's more than the GDP of Australia or South Korea. Indeed, if Nvidia was a country, it would rank just outside the top ten largest economies on Earth.

Yet -- a word of caution: Trends generally don't go up or down in straight lines without significant interruptions.

Indeed, the March Global Rates & Money Flows, one of Elliott Wave International's newest services, which covers global fixed income markets, stocks, currencies and more, shows this chart of an AI exchange-traded fund and says:

BOTZ, the ticker for the Global X Robotics & Artificial Intelligence ETF, sports a clear five-wave decline from 2021 to 2022. Since then, a corrective rally appears to be in operation with wave C advancing now. ... [The] evidence suggests that the AI revolution may be off to a false start.

But what about the price pattern of Nvidia? -- you may ask.

Know that our Senior Global Strategist, Murray Gunn, also provides Elliott wave analysis of Nvidia in the March Global Rates & Money Flows.

If you're unfamiliar with Elliott wave analysis, read Frost & Prechter's definitive text on the topic, Elliott Wave Principle: Key to Market Behavior. Here's a quote from this Wall Street classic:

Despite the fact that many analysts do not treat it as such, the Wave Principle is by all means an objective study, or as [Charles] Collins put it, "a disciplined form of technical analysis." [Hamilton] Bolton used to say that one of the hardest things he had to learn was to believe what he saw. If you do not believe what you see, you are likely to read into your analysis what you think should be there for some other reason. At this point, your count becomes subjective and worthless.

How can you remain objective in a world of uncertainty? It is not difficult once you understand the proper goal of your analysis.

Without Elliott, there appear to be an infinite number of possibilities for market action. What the Wave Principle provides is a means of first limiting the possibilities and then ordering the relative probabilities of possible future market paths. Elliott's highly specific rules reduce the number of valid alternatives to a minimum.

If you'd like to learn about the "highly specific rules" of the Wave Principle, know that you can gain complimentary access to the entire online version of Elliott Wave Principle: Key to Market Behavior for free.

Just follow the link and you can have the Wall Street bestseller on your computer in moments: Elliott Wave Principle: Key to Market Behavior -- get free and instant access.

Stocks: What to Make of All This Insider Selling

Here are details of "The Great Cash-Out"

By Elliott Wave International

Corporate insiders may sell the shares of their company for any number of reasons but one of them is not because they think the price is going up.

In other words, insider selling can serve as a warning.

For example, the January 2022 Elliott Wave Financial Forecast, a monthly publication which covers major U.S. financial markets, noted:

Only one group is selling. ... Corporate insiders sold a record $64.5 billion of their firms' shares through November [2021]. As the December [2021] Theorist noted, insiders "know what their companies are worth," and "they've been selling their heads off."

This commentary was published within days of the January 2022 highs in the Dow Industrials and S&P 500.

What does all this have to do with today?

You guessed it, insiders are in a selling mood again.

Here are just a few prominent examples:

In the last two months of 2023, Mark Zuckerberg, the executive chairman of Meta Platforms (Facebook), sold $400 million worth of Meta stock. He then sold another $661 million between January 31 and February 21.

Around this time, on Jan. 20, Bloomberg noted:

... a total of 1,000 insiders sold their own stock and 128 bought shares, leaving the sell-to-buy ratio poised for the highest monthly reading in data going back to 1988.

Then, on Feb. 27, we had this headline from Fortune:

The Great Cash-Out: Jeff Bezos, Leon Black, Jamie Dimon, and the Walton family have now sold a combined $11 billion in company stock this month ...

JPMorgan CEO Jamie Dimon and Apollo Global Management co-founder Leon Black sold shares in their companies for the first time ever.

The Walton family unloaded $1.5 billion of Walmart shares and Jeff Bezos sold $8.5 billion of Amazon stock.

Also of note are the stock market activities of another very rich person -- or shall I say the lack of activities.

Warren Buffet of Berkshire Hathaway is holding onto a record high stockpile of cash: $167.7 billion. The Oracle of Omaha says he sees "no candidates for capital deployment."

Of course, major corporate insider selling is by no means the only indicator investors should watch.

Market participants may also want to monitor the repetitive patterns of investor psychology -- which show up as Elliott waves on price charts.

If you'd like to delve into the details of Elliott wave analysis, read Frost & Prechter's definitive text on the subject -- Elliott Wave Principle: Key to Market Behavior. Here's a quote from this Wall Street classic:

It is a thrilling experience to pinpoint a turn, and the Wave Principle is the only approach that can occasionally provide the opportunity to do so.

The ability to identify such junctures is remarkable enough, but the Wave Principle is the only method of analysis that also provides guidelines for forecasting. Many of these guidelines are specific and can occasionally yield stunningly precise results.

Get more insights into the Wave Principle by reading the entire online version of the book for free.

Just follow the link and you can have the Wall Street bestseller on your computer screen in moments: Elliott Wave Principle: Key to Market Behavior -- get free and instant access.

This article was syndicated by Elliott Wave International and was originally published under the headline Stocks: What to Make of All This Insider Selling. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Commercial Property Prices: Why the Decline May Have Just Started

This index has already retreated 20% since May 2022

By Elliott Wave International

The major bust in property prices 15 to 20 years ago started with the residential real estate market.

This time, the commercial real estate market may have taken the lead. Here are some recent headlines:

• ["Shark Tank Star"] Says a Coming Real Estate Collapse Will Lead to 'Chaos' -- Yahoo Finance, Jan. 30
• Commercial Property Losses Hammer Banks on Three Continents (Wall Street Journal, Feb. 1)
• Bracing for the commercial real estate 'reckoning' -- Reuters, Feb. 2

As rough as it's already been for the commercial real estate market, it appears that "reckoning" is only in its early stages.

Keep in mind, as you review this chart and commentary from the February Elliott Wave Financial Forecast, that progress in a market takes the form of five waves. Once those five waves are complete, a correction is due (Note: The Elliott Wave Financial Forecast is a monthly publication which covers major U.S. financial markets):

This chart of the Green Street Commercial Property Index shows the latest decline, a 20% retreat from May 2022. In terms of time, the 20-month plunge is already close to the 22-month decline from September 2007 to June 2009. ... [T]he crumbling demand for commercial space, not to mention the five-wave form of its rise from 1998, suggests that further declines are "baked in."

The U.S. commercial real estate market is valued at $20 trillion, according to Bloomberg, so the developing crisis is not a minor ordeal.

Part of the reason the full brunt of the crisis has been delayed is that many loans have been granted extensions.

When those mature loans are refinanced, some borrowers could see their interest rates skyrocket. This could set off a wave of defaults.

Business Insider recently quoted an economist who specializes in the property sector (Jan. 23):

"[B]uilding owners are looking to 'extend and pretend' but that strategy can't last forever as there's still a $2.2 trillion mountain of commercial real estate debt that will mature by 2027."

Some building owners have already experienced a lot of financial pain. For example, Aon Center -- the third-tallest tower in Los Angeles -- sold for $147.8 million. That's 45% less than its 2014 purchase price.

This is just one example of what's going on in commercial real estate.

Also know that the property and stock markets tend to be correlated.

If you would like to ascertain the trend of the stock market via Elliott wave analysis, you may want to read the Wall Street classic, Elliott Wave Principle: Key to Market Behavior. Here's a quote from the book:

In markets, progress ultimately takes the form of five waves of a specific structure. Three of these waves, which are labeled 1, 3 and 5, actually effect the directional movement. They are separated by two countertrend interruptions, which are labeled 2 and 4, as shown in Figure 1-1. The two interruptions are apparently a requisite for overall directional movement to occur.

[R.N.] Elliott noted three consistent aspects of the five-wave form. They are: Wave 2 never moves beyond the start of wave 1; wave 3 is never the shortest wave; wave 4 never enters the price territory of wave 1.

Get more insights into the Wave Principle by reading the entire online version of the book for free.

Just follow the link and you can have the Wall Street bestseller on your computer screen in moments: Elliott Wave Principle: Key to Market Behavior -- get free and instant access.

This article was syndicated by Elliott Wave International and was originally published under the headline Commercial Property Prices: Why the Decline May Have Just Started. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Stocks: What This "Record Extreme" May Be Signaling

"The total easily exceeds the prior net long extreme"

By Elliott Wave International

When most everyone agrees on the future trend of a market, it's almost guaranteed that the market will go in the other direction -- sooner rather than later.

The reason why is that there is no one left to convince, hence, the market in question will likely have difficulty going in the predicted direction.

As Robert Prechter notes in a classic Elliott Wave Theorist (a monthly publication which analyzes major financial and cultural trends):

The more convincing the arguments seem, the surer one can be that a consensus is signaling a turn in the other direction.

With that in mind, consider this chart and commentary from the February Elliott Wave Financial Forecast, a monthly publication which covers major U.S. financial markets:

[A] new record was recently reached in the net long position of Small Traders as published weekly in the Commitment of Traders Report. The combined net long futures position of Small Traders in the S&P 500, NASDAQ 100 and DJIA soared to an all-time high of $51.59 billion on January 9. The total easily exceeds the prior net long extreme of $42.06 billion in September 2021.

As you may recall, that prior peak reading in investor sentiment occurred just weeks before the November 2021 top in the NASDAQ indexes.

That doesn't mean that the exact same scenario will play out again.

However, keep in mind that the patterns of investor psychology tend to be similar each time around -- as markets go from an uptrend to a downtrend and then back again.

And these patterns don't just apply to the typical retail or Main Street investor, they also apply to money managers who may oversee portfolios in the tens of billions of dollars. Here's a quote from another classic Theorist:

Small traders are typically on the wrong side of the market at the turns. You might think that large traders, because they have a lot more money, are right a lot, but they are likewise usually wrong at the turns.

The repetitive patterns of investor psychology show up as Elliott waves on the charts of widely traded financial markets.

If you are unfamiliar with the Wave Principle, read Frost & Prechter's Wall Street classic, Elliott Wave Principle: Key to Market Behavior. Here's a quote from this "must read" book:

Without Elliott, there appear to be an infinite number of possibilities for market action. What the Wave Principle provides is a means of first limiting the possibilities and then ordering the relative probabilities of possible future market paths. Elliott's highly specific rules reduce the number of valid alternatives to a minimum.

No analytical method can guarantee a particular outcome in financial markets but given Elliott waves reflect the repetitive patterns of investor psychology, the knowledge those waves provide about the market's position within the behavioral continuum is extensive and second to none.

You may be interested in knowing that you can access the online version of the book for free once you join Club EWI, the world's largest Elliott wave educational community.

A Club EWI membership is free and allows you access to a wealth of Elliott wave resources on investing and trading without any obligations.

Just follow the link to get started: Elliott Wave Principle: Key to Market Behavior -- get instant and free access.

This article was syndicated by Elliott Wave International and was originally published under the headline Stocks: What This "Record Extreme" May Be Signaling. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.