The Market Is Looking for an Excuse to Sell Off
Economic news and Nvidia earnings are on deck, but even good numbers may not be sufficient to keep stocks running higher.
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The market had a mixed day Monday, with semiconductors and big-cap technology lagging and breadth running slightly negative. Rotational action into small-cap stocks continued, but the rally fizzled late in the day, and the Russell 2000 closed flat.
The market is looking for its next catalyst, and there are several in contention. Consumer Confidence numbers will be released at 10 a.m. ET on Wednesday, and PCE inflation data is due on Friday, but most investors are focused on Nvidia NVDA, which will release its earnings report Wednesday night.
It has been a rocky quarter for the Magnificent Seven, mostly because big players such as Google GOOGL and Amazon AMZN are still building their AI infrastructure. These companies have to spend billions before the results of AI start to show on the bottom line.
Nvidia is the premier provider of AI infrastructure. Its chips are the main currency in AI development, and so far, the primary issue has been whether Nvidia can produce enough supply to meet the demand.
Expectations are high for Nvidia, but even if they are met, will it ignite a new upleg for a market driven by big-cap technology strength? The poor action in chip stocks calls that into question.
News isn’t always inherently good or bad. It depends on the context in which it is received. A beat-and-raise quarter by Nvidia would be positive, but the market already has extremely high expectations, so it may not be good enough to give the market a lift.
I’m concerned about the overall market right now. While the indexes have strong momentum and are sticky to the upside, volume is very light, and there is mild profit-taking. It is very tough to find good technical buys right now, and with so many stocks already extended, the chances of more profit-taking are high.
We will see how the economic news and Nvida impact the action, but this is a market looking for an excuse for a larger selloff, and news flow will be viewed through that lens.
I’d like to be more optimistic, but my focus now is on defense. I’ll make some buys if I can find setups that I like, but there aren’t many positive catalysts on the horizon in most cases.
At the time of publication, Rev Shark was long NVDA.
