But now, companies are continuing to ramp up their investments into large language models and thus require Nvidia chips. And they are the only company that comes close to satisfying demand. Notice how I said large language models and not AI. AI is composed of diverse technologies, but since the release of ChatGPT, all focus is on LLMs and their immediate economic benefit to productivity. The world is ignoring the many other applications of AI and machine learning (like what Trend Prophets offers). This is leaving a lot of innovation open to other companies. Like us.

A sign of a healthy market is usually solid market breadth. That means we want to see all members of an index or a market contribute to the rally instead of just a handful. If only a handful are keeping things going, one bad event can cause a significant correction or bear market to ensue. And there are many ways to measure market breadth. 

We would like to normally see small cap companies doing well also, given that the S&P 500, the standard US market benchmark, is primarily a large company index. Currently, the small caps are still lagging. But this is also the result of the fact that most of the indexes we hear of are capitalization weighted. Meaning, the larger their stock price and the more shares they have outstanding, the greater the weight they receive in an index. So, no kidding we always see news that the so-called Magnificent 7 are carrying the market. The current top 10 of the S&P 500 represents 31.26% of the index. Microsoft and Apple represent a third of that. So, when you have stats like that, you can’t exactly pinpoint what is going on in the rest of the US market.

One indicator I use to help measure the strength of market rallies and breadth is the McLelland Oscillator and its associated Summation Index for the New York Stock Exchange. This allows us to see the activity of many more companies (close to 2400). This includes companies of all sizes, and international ones as well.

I won’t go into the details of the index (you can read up on it here), but it is based on the average number of advancers vs. decliners on the exchange, thus providing a market breadth measure. A rising Summation Index indicates market strength as more companies are advancing then declining, thus indicating market strength and that the rally can continue. Conversely, a falling index indicates worsening breadth and weak markets.

Figure 1below shows the Summation index along with the S&P 500 (SPY ETF). We can see that market breadth has been pretty healthy. But yes, since the start of 2024, we have seen it decline. And declining market breadth while markets are making new highs, is usually not a good sign. So, we can’t predict where it is going to go, but this is telling us to stay alert. We should also notice that extreme values of the index at +1000 or -1000, can typically be seen as tops (or bottoms) and some mean reversion is in order.