Nvidia and the Midcap Breakout

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Megacap growth stocks like Nvidia have outperformed for years. But traders looking for the trend to change may see more evidence of a shift.

Today’s idea considers three charts. The first shows how Nvidia (NVDA) rallied 93 percent this year above its previous record high. It also highlights the big price swing on Friday as the chip giant made a new record high before reversing lower. In the process it engulfed prices over the two previous sessions. That’s a potential reversal pattern, especially considering the heavy volume. Is it a top for now?

We next turn to the MID S&P 400 midcap index, which ended last week above its previous weekly closing high from November 2021. That pattern of higher weekly closes in December anticipated January breakouts in the Nasdaq-100 and S&P 500. Will midcaps follow?



MID is potentially important because it mostly focuses on traditional groups like industrials, retailers and financial services. It roughly tracks “value” stocks.

Speaking of value stocks, the final chart shows a ratio between the SVX S&P 500 Value Index and the Nasdaq-100 on a monthly time frame. Value outperformed as the dotcom bubble deflated, but then growth stocks regained leadership in 2009. However the ratio has stabilized since August 2020.



Finally, the AI trend is about one year old. (It began with the spread of ChatGPT in February 2023 and NVDA’s GTC conference one month later.) Will investors start taking profits on long-term gains? Conditions are also changing as the economy skirts recession and the Federal Reserve prepares for a potential rate cut in June.

In conclusion, traders looking for a rotation away from megacap growth stocks have been frustrated for a long time. But now there could be increasing signs that some rotation has finally begun – at least for the time being.

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