After Nvidia, Conditions Point to Deeper Correction

After the Nvidia NVDA report on Wednesday night, the market was trading broadly lower, and it looked like Thursday was going to be a tough day. Things suddenly turned around overnight though and caught many market players by surprise. There wasn’t any obvious catalyst for the turn, but once strength started to develop, traders had to scramble to reposition.

Nvidia is still struggling and down over 4% as of this writing, but overall market breadth is very good, with around 6,200 gainers and 2,600 decliners. New 12-month highs are down to around 300, and volume is still light.

I’m not trusting this bounce action at all. I still feel like conditions are very good for deeper corrective action. The rebound in the indices is just delaying the inevitable. We are done with earnings now, and all the focus will be on economic news and then the Fed rate cut in a couple of weeks. That rate cut is so well anticipated, and the economic narrative is so positive, that there is a substantial risk of disappointment, along with negative seasonality.

I’m very intrigued by Nvidia here and am buying some into the weakness. The company has done a very good job of managing expectations, but many buyers had unrealistic expectations. Nvidia’s valuation is better than that of any of the other Magnificent Seven name, but it suffers a bit because semiconductors are viewed as cyclical. However, compared to Apple’s P/E of 34 and single-digit growth, Nvidia is almost a value play with a P/E of 57 and FYE January 2025 growth of 113%.

I believe that, after things settle down a bit, Nvidia will become a safe-haven play where money managers can park substantial sums of money without any real criticism. Nvidia is really the only company right now that is making substantial money from AI, and that will continue for a while. I’ll slowly be adding to Nvidia as opportunities arise.

Overall, I still see very few stocks that are ripe for entries. I did start a position in a small cap name, EOS Energy EOSE, which has a nice little cup-and-handle pattern and some news about a financing deal.

Another stock I added to was Shift4 Payment FOUR. I like how that is forming a high-level base that seems to have strong support. It has been on my shopping list for a while, and I’m only making small purchases at this point.

A fourth stock of interest is Powell POWL. It was slammed on Wednesday with no news. It is higher priced and trades thin, so it makes big moves. I added a small amount and will be watching to see how it acts relative to the Nasdaq 100.

I remain very cautious and keep cash levels high, but I’m going to make a few small incremental moves when I see opportunities.

At the time of publication, DePorre was long NVDA, EOSE, FOUR and POWL.