On November 18th, the stock was featured favorably on the front page of Barron’s. Contrary opinion suggests that this exposure is a negative. Research conducted by Paul McRae Montgomery in the 1970s made the point. He reviewed the cover of 3200 covers of Time Magazine. Paul concluded that whenever an investment-related story appeared, the price of that investment moved in the opposite direction to that which the cover suggested. This occurred 80% of the time over the following four months. Note that the effect was increased when an investment-related story was on the cover of a non-financial publication. Paul reasoned that a trend was in the ‘well done’ phase if it reached the cover of a publication, but especially so if it was on the cover of a publication read by the general public. We can see this effect in the political arena recently. Vice President Harris was on the covers of both Time and Barron’s prior to the election.
Below is the monthly price cycle of NVIDIA. Note the early December peak. In the last year, all buy signals have been correct and 75% of the sells have been profitable.
Monthly Cycle
Next, we check the seasonal cycle in the form of the monthly histogram below. Note that November has been the high point over the last 26 years.
NVIDIA Monthly Histogram (expected return)
Recent price action shows that relative strength versus the S&P 500 has been relatively flat since June. Weekly momentum as depicted by the blue line is waning and monthly momentum is historically overbought.
The recent earnings release was most telling; the stock did not rally despite very positive numbers. The green daily relative strength line has fallen slightly since that time.
NVIDIA Daily, Weekly, Monthly
The conclusion is that the stock is likely entering a period of consolidation in order to digest its gains. Do not buy the stock or add to holdings at this time. Portfolio managers are advised to move to a market-weight position.
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