Market Gets All Emotional Over Nvidia

The Nvidia NVDA earnings report triggered elevated volatility on Thursday morning and has been bouncing within a $12 trading range. It's back down about 2.5% after moving up more than 2% after the open. The highly emotional action is spreading to the broader market.

The senior indexes have also swung from green to red, with the Magnificent Seven names -- as seen in the Roundhill Magnificent Seven exchange-traded fund MAGS -- names down 1.85%. But as I discussed in my opening post, this creates good conditions for a rotation into small caps IWM. The Russell 2000 is trading up 0.6%, and breadth is positive with about 5,500 gainers to 3,500 losers.

The dilemma that the market presents is that the technical patterns for the indexes are not strong because of the unfilled election gap. Positive seasonality would be a great tailwind if that gap is filled and buyers step up.

The Nasdaq 100 QQQ is now forming a bearish engulfing pattern, and that may be the catalyst for sending it down to its 50-day simple moving average, which will fill the gap in the chart. It will become much uglier if that is going to happen.

The good news is that rotation into small caps favors stock pickers. There are pockets of good action and good charts, but they are mostly secondary stocks. If we can deal with the technical issues in the next few days, then there will be a great setup for a holiday rally as we approach Thanksgiving.

I’m not making any big moves right now, but I’m looking for better chart development in the stocks on my shopping list. The Nasdaq 100 continues to sink, as I write, which is actually a very good longer-term positive. There is going to be more short-term pain before we have the potential for longer-term gain.

At the time of publication, DePorre had no position in any security mentioned.