NVDA earnings show AI appetite is as fierce as ever… But it’s only the generals charging into battle… Big developments in cryptoland… What the Heikin-Ashi chart tells us about crypto’s next move… Jason Bodner’s Quantum Hotlist spies new targets… Keith Kaplan’s One Percent Summit will show you how to trade like the uber-wealthy…

By Michael Salvatore, Editor, TradeSmith Daily

Big tech earnings are behind us. And with them, the crescendo of Nvidia’s (NVDA) quarterly report has confirmed what’s become increasingly apparent over the last year – AI isn’t going anywhere.

The leading semiconductor firm continues to sell shovel after shovel to the software firms clambering to strike AI gold. First-quarter revenue was up 262% from the same period last year – notably, the first quarter where AI truly gained steam – at $26 billion against expectations of $24.6 billion.

It also pulled two of Wall Street’s favorite moves – it raised forward guidance, up from $26 billion to $28 billion, and announced a stock split. The 10-for-1 split happened just in time for the share price to cross $1,000, with it closing at $1,064.69 on Friday.

Stock splits, as you may know, have no tangible effect on a company’s valuation. Despite the appearance, the stock doesn’t suddenly become that much cheaper.

But it does have an important effect on investor psychology. Many small investors would balk at a $1,000 share price, declaring it “expensive.” But a $100 share price is far easier to stomach… making the stock potentially more popular and profitable for current shareholders.

Overall, NVDA’s continued strength is a sign that AI is still very much in vogue… and is a trend worth buying into via exceptionally strong companies like this one.

But we should also remember it’s not everything. And if we look at the state of “everything” in the market, we get a potentially worrying picture.

❖ I’m talking about the market’s “breadth”…

Breadth is essentially how many stocks are trading in an uptrend. The more stocks in an uptrend, the healthier the market.

Right now, the number of S&P 500 stocks above the 200-day moving average (blue line below) is at its lowest point since the beginning of May. The last time we were at this level, stock prices were 4% lower. Here’s the chart of that metric over time, along with the S&P 500 ETF (SPY; orange line):

This is a testament to why indexes like the S&P 500 are market-cap weighed – the largest stocks in the market are making the biggest returns and have the highest-quality businesses, so they can “carry” the market higher.

But when market breadth worsens like this, as we saw in late March and through the first half of April, it can be a bad sign. Back then, a peak in breadth coincided with a short-term market peak and subsequent cooldown.

We’re seeing a similar reading in our systems. Right now, just under 60% of stocks in the S&P 500 are in the Green Zone – TradeSmith’s proprietary measure of momentum-based health.

The broad market has been in the Green Zone as a whole for the last six months, but any worsening conditions in the underlying Health should be cause for concern.

Just as in March, stocks are a bit extended here. While the largest-cap companies in the market continue to push through record highs, it’s mainly the generals charging into battle. That’s enough for me to wave the “caution” flag.

Take a look at your portfolio and consider trimming some recent big winners and raising cash for a potential downturn.

Speaking of things that aren’t going away anytime soon…

❖ There were three major (though not yet final) developments in the crypto world this week.

1. The House passed the Financial Innovation and Technology for the 21st Century Act with some bipartisan support. The bill aims to establish regulatory clarity on digital assets.
2. Staying busy, the House also passed the CBDC Anti-Surveillance State Act. The aim was to block the ability of the Federal Reserve to issue a digital dollar – a project that’s been underway for several years. Not surprisingly, this vote went along party lines, with the Republicans managing to pass the bill with near-unanimous support despite only a handful of Democrats voting with them.
3. Most interesting of all… the SEC approved several key regulatory filings for “spot” ETFs that hold actual Ethereum (ETH), not just futures contracts like the ones available now – which few analysts expected.

Taken together, it was a big week for crypto – particularly for entrenching it as a presence in the financial system not burdened by government control.

It begs the question, then – what’s next for the price action?

The crypto sector had a brief resurgence from the sideways action last week, only to give some of those gains up by Friday. Below is a quick look at the whole sector on a specific type of chart you should have in your kit.

This is the total market capitalization of the crypto sector, about $2.43 trillion as I write. And we’re viewing it with a weekly Heikin-Ashi candlestick chart – a lagging indicator that helps us find major trend changes in certain asset classes:

Heikin-Ashi charts have a lot of math and history behind them, which we’ll save for another day. For today, just understand that trend changes on Heikin-Ashi charts are characterized by candles with small bodies and long upper and lower wicks.

When you see candles like this, odds are good the trend is about to change. That’s especially true when they form after a sequence of same-colored candles with long single-direction wicks and larger bodies.

With that in mind, take another look at the above. The total crypto market cap is currently printing a green (positive) candle with a long upper wick and a large body. That’s immediately following a trend-change candle – a barely green candle with a small body and long upper and lower wicks. And that comes after a sequence of bearish red trend candles, along with a red trend-change candle.

In all likelihood, what’s next for crypto is another big push higher – similar to what we saw from February through April on the chart above: a sequence of green candles with large bodies and large upper wicks.

But it’s important to understand that Heikin-Ashi charts operate on a lag. They factor in earlier price data to create a smoother “average” of prices over a longer period of time. They’re not what you want to use for short-term trading.

I remain bullish on crypto and think the past week’s news is another catalyst in the making. The sector – and especially ETH, the crypto involved in the newest ETFs – is experiencing a “sell the news” drop at the moment, but as we’ve shown before, that’s reason to buy.

❖ Let’s check in with Jason Bodner’s Quantum Edge hotlist…

Every Monday, Jason shares his Quantum Edge hotlist with his Quantum Edge Pro subscribers. It contains the top- and bottom-ranked stocks on his system, grading their fundamentals, technicals, and institutional buy or sell signals.

Subscribers get the newest list every Monday afternoon, and there’s always a juicy spread of ideas to buy or short in there.

Here’s last week’s list…

This week we’re seeing decidedly more tech companies grace the list – especially those that are AI-adjacent. Here we see A10 Networks (ATEN), Google (GOOGL), NXP Semiconductors (NXPI), and more alongside strong names in agriculture, investment services, and the stalwart oil & gas name Tidewater (TDW), which has appeared in quite a few of these weekly lists.

Meanwhile, rounding out the bottom five are some biopharma stocks, commodities and mining, and telehealth company Teladoc (TDOC): the mega-popular “COVID stock” that has since fallen from grace.

If you’d like to get the newest rankings, along with all of Jason’s recommendations and high-quality insights into the growth stock market, go here to learn what Quantum Edge Pro has to offer.

❖ Wednesday, Keith Kaplan goes live with the “One Percent” strategy you should know about…

Longtime readers know the great value we place in algorithmic, high-odds strategies you can use to beat the market by stacking tiny wins until they’re as tall as a tower.

That’s exactly how the 1% builds and keeps their wealth, by using a specific strategy that’s designed to pay out consistently while other traders make speculative, low-odds bets over and over in a vicious cycle.

Our CEO, Keith Kaplan, will show off our latest research into this area of trading in a can’t-miss presentation this Wednesday, May 29, at 8 p.m. Eastern.

Part of that presentation will include a strategy with a 95% win rate… which some of our readers report having made anywhere from tens of thousands to millions of dollars using.

The ultra-wealthy investor’s tools used to be behind closed doors. But that’s changed. The era of online brokerages has democratized investing, allowing anyone with a solid brokerage account and a chunk of cash the ability to trade these high-odds techniques.

If you’re worried about a market crash crippling your retirement, I urge you to tune in. This is the kind of thing that not only survives market crashes – but can significantly benefit from surges in volatility… if you get the timing right.

Go right here to save your seat for Wednesday’s event. By signing up, you’ll get the chance to access a brand-new special report called The Profit Period: Why the Coming Six Months Could Deliver the Biggest Trading Profits in Years.

To your health and wealth,

Michael Salvatore
Editor, TradeSmith