August 18, 2025

(AI STOCKS ARE IN DAREDEVIL SPORTS RALLY MODE AND IT HAS INVESTORS WORRIED)

August 18, 2025

Hello everyone

WEEK AHEAD CALENDAR

2025 Federal Reserve Bank of Kansas City’s Economic Policy Symposium in Jackson Hole, Wyoming, on “Labor Markets in Transition: Demographics, Productivity, and Macroeconomic Policy” takes place Aug. 21-23.

Monday, August 18

10:00 a.m. NAHB Housing Market Index (August)

8:30 p.m. Australia Consumer Confidence

Previous: 0.6%

Forecast: 0.2%

Earnings: Palo Alto Networks

Tuesday, August 19

8:30 a.m. Building Permits preliminary (July)

8:30 a.m. Housing Starts (July)

8:30 a.m. Canada Inflation Rate

Previous: 1.9%

Forecast: 2.0%

Earnings: Keysight Technologies, Jack Henry & Associates, Home Depot

Wednesday, August 20

2:00 a.m. UK Inflation Rate

Previous: 3.6%

Forecast: 3.7%

2:00 p.m. FOMC Minutes

Earnings: TJX, Analog Devices, Estee Lauder Companies, Target, Lowe’s Companies

Thursday, August 21

8:30 a.m. Continuing Jobless Claims (08/09)

8:30 a.m. Initial Claims (08/16)

8:30 a.m. Philadelphia Fed Index (August)

9:45 a.m. S&P PMI Services preliminary (August)

10:00 a.m. Existing Home Sales (July)

10:00 a.m. Leading Indicators (July)

7:30 p.m. Japan Inflation Rate

Previous: 3.3%

Forecast: 3.0%

Earnings: Workday, Ross Stores, Intuit, Walmart

Friday, August 22

10:00 a.m. US Fed Chair Speech

HEADLINES

Hurricane Erin explodes in strength to a Category 5 in the Caribbean.

Putin and Trump’s talks in Alaska ended with no concrete peace arrangement.

The south-east corner of Queensland (I live on the Gold Coast) had a 5.6 magnitude earthquake on Saturday. All my doors rattled. I thought that was very strange. It’s been 50 years since the last earthquake in this area.

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The concentration in AI darlings has investors on edge

Headlines don’t seem to matter anymore when it comes to AI stocks. They seem to completely ignore everything and just keep marching on to new highs.

The S&P500 is back at all-time highs as the bull case on Wall Street plays out. Artificial Intelligence is ramping everything to the upside. Corporate earnings are topping expectations. Many say interest rate cuts appear inevitable, but don’t bet on it. And let’s not forget the One Big Beautiful Bill – it will be stimulative for an economy where consumers are still spending.

Despite all the apparent good news, the market surging during a time of seasonal weakness and ongoing inflation concerns has many investors worried. Many are on edge about a stock market priced for perfection, with the S&P500 currently trading at a 12-month forward multiple of 22. A setback could come from anywhere. Those black swans are always lurking out there just beyond our vision. What if the Fed does not cut interest rates in September or even raises them. That could cause a shock and a lot of volatility and downside pressure.

So, I’d make sure you are out of all your trades before the Fed meeting and have downside protection in place. Or at least take half off each trade and let the other half run. That makes sure you are in the black and are then playing with house money. Even if we do get a sell-off in September, most analysts are recommending that investors buy the down move, as they have a strong finish for the year in their sights.

We all know the market is top-heavy.

Goldman Sachs noted last week that the top 20% of quality companies in the S&P500 – those with the cash piles and fortress balance sheets – are trading at a 57% price-to-earnings premium to the lowest quality stocks – a gap in the 94^th percentile going back to 1995.

To put it another way, mega caps, which already benefit from an AI tailwind, get a further boost from investors seeking safety from economic uncertainty.

But that could be troubling in the event of a pullback.

Nvidia, for example, accounts for roughly 8% of the S&P500, the biggest weighting of any individual stock in the cap-weighted benchmark going back to 1981, according to Torsten Slok, chief economist at Apollo Global Management.

China is a key weak point for the stock, as any curbs on Nvidia’s sales of its graphics processing units to Beijing will likely hurt the stock – and also the market.

A rotation could be on the horizon.

While the S&P500 has gained more than 10% in 2025, the median stock has only risen 3%, and remains 12% off its recent high, according to Goldman Sachs.

We could see a large rotation in the very near future. Small-caps outperformed their large-cap counterparts last week. Value-factor stocks also outpaced growth. Nvidia slid, and Apple advanced. Health care, a recent laggard, led the S&P500.

A 20% downside is overdue for the stock market – it could come next month, next year, or in the next three years. Keep watch. Diversify.

MARKET UPDATE

S&P500

Still the same old story here with this index. No evidence of even a shorter-term top yet. So, bias remains to the upside. Though, of course, risk is very high, and you should incorporate a high degree of risk management if you are doing any trading.

Resistance: 6510/20

Support: 6425/35 and 6380/05 + 6300/10

GOLD

Gold is still the dingo roaming the island, but in narrower ranges. We could still see more choppiness before a larger rolling over is seen.

Resistance: $3373/78 and $3405/10 + $3429/34

Support: $3329/34 and $3297/02

You can see on the gold chart below that the metal has broken out of the tight wedge.

You can also see that the RSI is pointing lower, which indicates momentum is slowing, and downside direction could be on the cards soon.

The (OBV) On Balance Volume is also showing a sideways movement

Certainly, after a fall in gold to around $3000 or below, I would recommend scooping up more gold stocks, as we will see another strong rally to the upside in the future.

BITCOIN

Bitcoin pushed to another new high on August 14. But we are now in a wave down, and we could see a fall to 110k or even the 106k area. First, let’s watch the 111/112k area. If that area does not support Bitcoin, we could see further falls. So, I’m watching the 111/112 area closely.

Resistance: 120.8/121.3k and 124.5/125.5k

Support: 115.9/116.4k and the 111.7/112.2k area

HISTORY CORNER

On August 18