The equity market rally showed renewed signs of vigor last week, regaining its footing after a slight pullback. The S&P 500 logged a new 2023 peak, while the Nasdaq stands at the threshold of upside breakout territory. Risk appetite has swelled considerably, signaling potential excess bullishness, but conviction continues rising. Decisive moves above recent ranges could spark the next ascent in this ongoing bull market.
Several semiconductor and electric vehicle (EV) stocks are approaching or clearing buy points. Names like Nvidia, Advanced Micro Devices (AMD) and Tesla seem primed to lead the next leg higher should the rally persist.
The S&P 500 added 0.2% last week, lifting the large cap benchmark to a fresh record high close for the year so far. The tech-heavy Nasdaq Composite rose 0.7%, coming just shy of notching its own 2023 high. Small caps outperformed again, with the Russell 2000 Index gaining 1%.
Yet euphoric sentiment permeates the market, embodied in the CBOE Volatility Index (VIX) sinking to lows not seen since before the pandemic roiled global markets. While greed doesn’t necessarily portend an imminent reversal, the intensity of bullish conviction raises risks as investors discount potential pitfalls.
Still, the market’s consolidation in recent months could provide a springboard for additional gains. Both the S&P 500 and Nasdaq now hover around levels that if clearly exceeded, would constitute upside breakouts, likely spurring a new wave of buying.
Several semiconductor names are approaching or crossing key thresholds. Nvidia stock rebounded right to the edge of a 476.09 buy point last week after finding support near its 50-day moving average. The graphics chip powerhouse has experienced booming demand from artificial intelligence (AI) applications, cementing its leadership. Heavy volume on Friday brought Nvidia to the cusp of triggering this new entry. Traders may have initiated early positions in anticipation.
An early customer for Nvidia’s newest data center chip family is Microsoft. But the software and cloud behemoth intends to curb its reliance on Nvidia hardware for internal AI workloads going forward. AWS and Google Cloud maintain similar strategic priorities, presenting a long-term risk despite Nvidia’s present dominance in AI accelerators.
Rival AMD unveiled its own new suite of AI offerings last week, directly confronting Nvidia in the burgeoning AI semiconductor space. Multiple hyperscale cloud providers already signed on, including Microsoft and database expert Oracle. Azure plans to employ AMD’s next-gen Instinct MI200 chips to train models more cost effectively.
AMD cleared two buy points on Thursday then extended its breakout Friday. Shares remain within the 5% buy zone stemming from the 125.37 weekly chart entry triggered last week. Management sees its Instinct data center portfolio spurring sales growth above overall market rates starting 2024 as adoption expands.
Newly public semiconductor IP licenser Arm Holdings staged its own breakout Friday, vaulting past a 64.92 initial public offering base buy point in heavy trade. Arm’s architecture underlies chip designs from an unparalleled swath of electronics vendors. Its Switzerland-like neutrality, with essentially every relevant player licensing Arm blueprints, anchors an enviable business model and total addressable market.
Long-time Arm ecosystem anchor Taiwan Semiconductor Manufacturing (TSM) edged higher last week after finding buyers near its 50-day average. Shares bounced late week as volume increased. That created an early entry by breaking a short-term downtrend. TSM stock sports an official buy point at 100.70 according to its base pattern. But traders positioned early by capitalizing on the trendline break.
As one of the largest semiconductor contract manufacturers worldwide, TSM intends to set lofty 2023 capital spending in motion quickly, recently guiding for up to $40 billion. The chip fabrication titan generates tens of billions in annual free cash flow, granting flexibility to fine-tune investments as circumstances evolve.
Top electric vehicle producer Tesla ticked 2.1% higher last week, notching a fourth straight weekly advance. The stock has established a tight, orderly base just above its 50-day moving average in recent weeks.
Technically TSLA indicates a valid 278.98 entry at its double bottom. But momentum traders are eyeing a trend line break below 250 along with the November 29 peak of 252.75 as alternatives to time an early entry. Muted volume last week suggests some hesitation or skepticism that Tesla can vault meaningfully higher from its perch.
Yet when behemoths like Tesla with massive institutional ownership consolidate gently rather than correcting harder, breakouts sometimes materialize almost unexpectedly. The obviousness of its current posture could be a bullish indicator.
In a separate milestone with growth implications, the FDA approved the first ever gene editing therapy Friday. Crispr Therapeutics, in collaboration with Vertex Pharmaceuticals, secured approval for a novel treatment aiming to address blood conditions tied to sickle cell disease and beta thalassemia. Both pioneers worked hand-in-hand with regulators to usher the cutting edge curative approach from labs to market.
Shares of CRISPR gene editing bellwether Crispr initially popped Friday morning on news of the historic green light for a commercial gene editing therapy. But profit-taking erased the gains, with the stock closing down 7% in a textbook “sell the news” reaction common among richly valued biotech equities finally attaining major catalysts. Even so, CRSP has still vaulted over 60% higher in 2022 alone.
Technically Crispr shares found support near the 50-day average amid Friday’s slide. A rebound from current levels could offer a secondary purchase window. Vertex’s $200 million milestone payment to its smaller CRISPR-focused partner officially commenced with Friday’s landmark approval.
Conclusion: Time to Run With the Bulls or Prepare for Pullback?
Major U.S. stock indexes stand at the verge of potential upside breakouts should yesterday’s buoyancy persist. Decisively conquering near-term peaks could set loose a stampede of buy orders hightailing it into the market. The recent sideways drift provided time for leaders to shape new bases, with semiconductor and electric vehicle plays looking especially spring-loaded for additional gains. A broadening of sector leadership would reinforce the rally’s durability, with areas like financials, industrials and healthcare showing positive undertones.
But with greed overtaking fear to extremes right as indexes flirt with key tests, the tension between opportunity and risks mounts. Disciplined risk management could mean either capturing profits during potential technical failures, or conversely, running with the bulls while they still have momentum. How the market navigates this crossroads will color its character in the weeks and months ahead. One key variable investors must assess—can positive earnings surprises and cooling inflation offset Fed resolve to keep rates higher for longer in the battle against excess demand?