Sir Isaac Newton's South Sea Bubble Nightmare

In 1720 Isaac Newton had the good fortune to invest early in the South Sea Bubble, making a quick and decent profit. Satisfied with his gains, he exited before the bubble fully inflated. However, as he saw his friends amass incredible wealth, he couldn't resist re-entering the market. In an attempt to make up for lost time, he invested far more—some of it borrowed—and, unfortunately, bought in just before the bubble burst. As the stock plummeted, he lost almost everything, with his investment returning to roughly the value of his initial, smaller stake. It's said that Newton, reflecting on his experience, remarked, "I can calculate the movement of heavenly bodies but not the madness of men."

 

» There is nothing so disturbing to one's well-being and judgment as to see a friend get rich. « 

– Charles P. Kindleberger

 

Sir Isaac reportedly lost the equivalent of $4 to $5 million today, which amounted to almost the entirety of his investment in the South Sea Company. While this was a huge blow to his wealth, it did not leave him destitute, and he still maintained a fortune, though his stake in the company was essentially wiped out, losing around 90% of its value.

Nvidia Before & After ChatGPT │ Phil Rosen

Similar to what happened last quarter, the world’s largest stock fell more than 2.5% in overnight trading following the blowout earnings report.

 

■ Earnings per share: $0.81, beating estimates for $0.74, up 103% from a year ago.

■ Revenue: $35.1 billion, beating estimates for $33.2 billion, up 94% from a year ago.
■ Nvidia’s Q4 revenue forecast: $37.5 billion (±2%), beating estimates for $37 billion.

 

The following chart is worth revisiting every earnings report, as it becomes more extreme with each update: 

 Nvidia had risen 192% year-to-date as of Wednesday's close.

Reference:
Phil Rosen (November 21, 2024) - Nvidia shareholders are so spoiled that they felt let down by a $35 billion quarter. 

$NVDA is flashing in our buyer's frenzy indicator again. This is tactical, but suggests upside 

expectations are extraordinarily high/priced in. — RenMac, November 20, 2024.

US Stock Market Nearing a Top Similar to 1929 │ Tom DeMark

The stock market has been charging along for months. Perhaps not for much longer. Tom DeMark, an award-winning technical analyst who has advised investors such as Paul Tudor Jones, Leon Cooperman, and Steven A. Cohen, believes a market top is imminent.

DeMark highlights that the Dow Jones Industrial Average, from its December 1914 low to its September 1929 high, rallied 624%. From the 2009 low to this week’s high, the Dow has gained 587%. He notes that the current price action mirrors the patterns from the earlier period.  

 

DeMark focuses on trend exhaustion, with the guiding principle that "markets top on good news and bottom on bad." He uses sequences of 9 and 13 daily, weekly, or monthly bars, which need not be consecutive but must exceed the performance from 4 sessions ago in the 9-model or 2 sessions ago in the 13-model. For more information on DeMark's Sequential 9-13 Setup, visit his website [HERE], and [HERE].

 DJIA (1913-1933, and 2008-current; monthly bars).

"On the daily charts of the Dow and S&P, two new all-time highs are needed to trigger a sell signal."

DeMark suggests the Dow’s optimistic upside potential is 47,045, and for the S&P 500, it is 6,118.

"This could lead to a 5% to 10% pullback or a full breakdown."

 

 DJIA (2019-2024; monthly bars).

He also compares the current rally to the one from 2020 to early 2022. The multi-month advance from late 2022 shows a potential upside projection identical to that earlier move.  

 

 DJIA (Q4 2024; daily bars).

For the S&P 500, DeMark reports that the monthly sequential model countdown is at 12 or 13, with an upside potential of 6,118. The S&P 500 closed Thursday, November 14, at 5,949, unable to maintain gains above the 6,000 mark. 

 

On the daily charts, both the Dow and S&P are at sequential countdown 11, meaning two new all-time highs are needed to trigger a sell signal. This could lead to a 5% to 10% pullback or a full breakdown. "The past two weeks' rally has been precarious. A sudden halt in buying—without selling pressure—could undermine the rally and shift the market into a sellers’ phase."

 

"While good news may last until Trump's inauguration, once buying interest fades, any subsequent rallies are likely to be short-lived." 

  Nvidia (February-November 2024; daily bars).

"A new closing high would mark the end of its rally."

DeMark is also cautious about Nvidia, the key microchip maker driving the AI revolution, which reports results next week. The stock is at countdown 12, and a new closing high would mark the end of its rally. DeMark projects Nvidia’s upside potential at $154.50 but warns the downside risk "could be significant."

 

Reference:
Steve Goldstein (November 15, 2024) - Tom DeMark says the stock market is nearing a top as he draws 1929 parallels.

 

 DeMark's Sequential 9-13 Setup.

 

See also:
Lars von Thienen (November 1, 2024) - The 41-Month Kitchin Cycle Topping Patterns in US Stocks.
Richard Smith (October 29, 2024) - Equities Endgame? Spectrum Cycle Analysis of US Indices.
Sergey Tarassov (September 8, 2024) - Kitchin Cycle Suggests DJIA Decline Until End of 2025. 

 

 

 S&P 500 Seasonal Pattern for the Presidential Election Cycle 2024 - 2027.
4 Year Presidential Cycle in line with the Decennial Cycle. 

Trends and turning points are more important than levels. 60-, 80-, or 120-Year Cycle?