All Eyes Are on Nvidia and the Gap in the Charts
Gaps don’t always fill but they are lurking out there and will be a magnet.
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Stocks rebounded on Tuesday despite escalation in the Ukraine-Russia war. There was some concern early in the day, but buyers bought the dip, which helped to produce a solid intraday uptrend. The action wasn’t euphoric, but it reflected bullish confidence and helped build some technical support.
Where the market is heading next will depend largely on the reaction to the Nvidia NVDA report on Wednesday night. Expectations are very high for a strong report, but Nvidia has consistently delivered, and market players tend to find reasons to buy more. I’ll update my trading strategy for it later on Wednesday.
My primary focus is how Nvidia will impact the technical condition of the indexes. All of the major indexes still have unfilled gaps that were created on the morning after the Trump election victory. Gaps don’t always fill but they are lurking out there and will be a magnet. If the Nvidia report receives a poor response from the market, then technicians will be watching for the gaps to fill before they are interested in buying.
The bottom of the gap is very strong support and is the spot that will entice buyers who want to position for a year-end rally.
As I discussed yesterday, market conditions are favorable for a year-end rally. Nvidia is going to play a large role in how the charts for the indexes will develop. A gap-and-go response will leave a hole in the charts and will make it harder for a sustained rally to develop. A pullback on the news would be better from a technical standpoint as it makes it easier for buyers to put money to work without chasing.
Another key market issue that will impact end-of-the-year action is the economic debate and the Fed interest-rate decision in December. There have been growing worries about a rebound in inflation, and the Fed has sounded less dovish recently, but the market has been focused on strong economic growth, which is offsetting weak bonds and sticky inflation.
If the economic narrative begins to shift, then there will be a headwind. However, it is unlikely that economic optimism will see any significant erosion before Trump even takes office.
We have a mild start on Wednesday morning, but all eyes will be on the Nvidia report after the close.
At the time of publication, Rev Shark was long NVDA.
