NVIDIA's upward flight is over? Positioning and expectations of institutional investors.

Chart of the week

The graph shows NVIDIA's share price performance (black line) and the amount of insider selling in red bars from top to bottom. Directors, officers, or other persons who possess information or hold more than 10% of a class of securities of a company are considered insiders by the SEC. These individuals are required to report purchases and sales of their own company's stock to the SEC and these are made public.
There is also a so-called "buyback blackout period". A blackout period in the financial markets is a period during which insiders are prohibited from buying or selling shares in their company or making changes to their pension plan investments. For company shares, a blackout period is usually imposed before earnings are announced. For pensions, it falls at a time when major changes are being made.

As we are nearing the end of the second quarter, the blackout period is now beginning for many stocks, including NVIDIA. The peak is reached on July 12 (black bars). Almost 80% of all companies are in this blackout period. This is why insiders in NVIDIA had to sell last week or would have been blocked for almost a month.
Why this is important
NVIDIA has fallen almost 20% since the high last Friday. Is this the turnaround?
On Friday, the June stock options in NVIDIA expired. The numbers show that most investors have not rolled them, i.e. they have unwound their aggressive bets on NVIDIA and do not believe in a further rise.

In addition, as described above, there was record-high selling by NVIDIA insiders, which makes you sit up and take notice.
The probability is quite high that NVIDIA's highs have come to a halt for the time being and that there could now be a consolidation of 1-2 months.

Positioning and expectations of institutional investors
Bank of America conducts a monthly survey of the largest institutional investors. Institutional investors are responsible for more than 50% of the volume on the US stock market. It is therefore very interesting to see how they are positioned and what their plans are. This will move the stock market in the coming weeks.

Here, the major institutional investors were asked where they see the greatest risks for the coming months (tail risk). Fears of rising inflation have decreased, but are still the biggest concern.

Geopolitical risks and the elections in the USA have increased.

The chart shows the inflation trend from 1966 to 1982 (black line) and since 2014 (blue line). The two periods show many parallels, which is why they are compared with each other. So far, inflation trends in the USA have been very comparable.
If this continues, inflation could rise sharply again from 2025. This has not yet been observed and it is not clear where such strong inflation would come from. Geopolitical disputes that have an impact on the oil price or an imbalance between supply and demand for commodities are possible.

Inflation is currently falling in the US and Europe, but the risk of inflation picking up again is present and should be closely monitored.

To produce this chart, institutional investors were asked about the proportion of cash in their portfolios. At 4%, this is close to historical lows. This means that even if positive economic reports are published, large investors no longer have much purchasing power. Positive news will have a smaller impact on the markets than negative news. These are usually situations in which a trend reversal or consolidation is imminent.

The chart comes from a survey conducted by J.P. Morgan, one of the largest banks in the USA, among its clients. Customers were asked whether they plan to increase their equity exposure in the coming weeks. At 17%, the figure is as low as it was in August 2023, which was followed by a market correction of 10-15%.
This is also the development we could be facing in the coming weeks.

To conclude, here is another question from Bank of America's survey of the largest institutional investors. They were asked where they see the biggest "crowded trade". In other words, the asset class in which too many investors are positioned and where valuations are therefore no longer attractive.

In June, the most frequently mentioned asset class or investment theme was again the Magnificant 7 stocks (Apple, Microsoft, Google, Facebook, Amazon, Tesla and NVIDIA). It is therefore unlikely that more money will flow into these shares from large institutional investors. This brings us full circle to the first article. A consolidation of NVIDIA is more likely than new all-time highs.