Nvidia Drama Is Covering Up Deeper Market Issues
Rising interest rates did more damage than Nvidia Thursday, and speculative interest is drying up.
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The indexes are flat Friday morning, with Nvidia (NVDA) bouncing about 2% as some of the worries about the company recede. Analysts remain cautious, though, and Truist downgraded the stock, arguing that ārisks are more relevant than valuation.ā
Nvidia created plenty of drama Thursday, but it obscured the bigger problem, which is a spike in interest rates. Fed officials sounded more worried about inflation, and the 10-year Treasury yield pushed above 5%.
Nvidia cut its early loss of about 14% to less than 4% by the close, and the S&P 500 and the Nasdaq finished only slightly lower. The Russell 2000 fell 1.7%, and only about a quarter of stocks finished higher.
Small-caps have little to do with Nvidia, but they have a lot to do with borrowing costs. The weakest stocks on Thursday were the ones with no connection to the Nvidia headlines.
Rates Are Hitting Everything
Gold fell to a 13-month low this week, and Bitcoin dropped below $70,000 for the first time since August. Those are the assets that suffer when investors can earn 5% on a Treasury bond.
Cisco Systems (CSCO) beat on revenue and raised its outlook for the year, and Applied Materials (AMAT) forecast revenue well above estimates and predicted another record year in 2027. Both stocks traded lower after their reports. When strong reports are sold, it tells you that buyers arenāt in a hurry.
Speculative interest is fading as well. The hot pockets of trading that show up in a healthy market have been missing. Little has been sustained recently, which is why Iām having difficulty finding new buys and have increased my cash levels.
The next test comes Friday morning with the producer price index. After the hot consumer price report on Tuesday, another strong inflation number would add to the pressure on bonds and raise the odds that the Fed moves by a half point in December.
The AI Issues Havenāt Gone Away
Jensen Huangās exit ended one uncertainty, but investors still have to figure out who will run the company, whether Nvidia keeps financing its customers and what the whole build-out is worth as money gets more expensive.
A new CEO is likely to be more careful with the cash. That may be good for Nvidiaās shareholders over time, but it is one more adjustment for the companies that depended on that money.
How This Sets Up
This period of chaos has the potential to create support that sets up seasonal strength into the end of the year. Sharp swings shake out the weak holders and establish levels the market can lean on. Once the people who wanted to sell have sold, it takes less buying to move stocks higher. It is going to take some time, though, and it is likely to be bumpy and inconsistent.
Despite all the drama, the S&P 500 and the Nasdaq are still up about 3% for the week. The lows from last Thursday have held so far, and that is the first step in building a base.
Most traders are too focused on trying to time short-term moves, and they are getting whipsawed by the news flow and the volatility. You canāt just buy the first uptick after a drop and expect things to go straight back up.
I want to see the daily swings start to narrow, pullbacks that hold above the prior lows and leaders that stay strong for more than a day or two. When stocks start acting that way, the charts give you an entry point and a place to put a stop. Right now there are few of them.
Game Plan
My best advice is to stay patient and wait for the charts to develop. My plan is to keep looking at hundreds of charts and watch which sectors are showing the best technical action.
I still have a small position in Nvidia with a stop at $150, and Iāll be watching the chart develop as I look for additional entries. I am not interested in holding Nvidia long term, but when a stock is this volatile, it creates good trading opportunities.
At the time of publication, Rev Shark was long NVDA.
