Will Nvidia Earnings Trigger a Shift in Market Character?
It's been a poor quarter for Magnificent Seven names, but is Nvidia still the star of the show?
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The indexes have been trending higher since early August and have become choppy as they come close to testing the highs that they hit back in July. Prices are staying sticky to the upside, but there is some toppy action, and momentum has cooled. Volume is light, and we are entering September, which is historically the worst month of the year.
Nvidia NVDA is probably the most important stock in the market as it is the major producer of the chips, which are the heart and soul of AI. The companies that are using those chips, such as Google GOOGL, Microsoft MSFT and Amazon AMZN, have found that they will need to make substantially more capital investments before AI starts to payoff for them.
The excitement of AI is cooling for the stocks that are trying to implement it, but what about AI infrastructure plays like NVDA and other semiconductor stocks? Is there increased competition? Is the backlog of business growing? Can Nvidia continue to increase its production?
This has not been a good quarter for the Magnificent Seven stocks, and there will be a strong inclination to "sell the news" when Nvidia reports. A huge beat-and-raise quarter is expected by many investors, but will it be good enough to reignite the stock? And if Nvidia has a great quarter, will it help other big-cap AI names that are forced to buy from it?
The market is at a technical juncture where it is looking for a catalyst for a shift in direction. Nvidia will be one potential issue, and the second will be the Fed interest-rate decision in about two weeks. Both of those events will tell us about the market mood, and it doesn’t help that negative seasonality is also lurking.
I’m concerned about the recent price action. There is still positive momentum, and the indexes are holding up, but volume is very light, and we are seeing the number of new 12-month highs decline as breakouts fail. Chasing strength is not working very well, and the energy of the market action is low.
I’m not a bear, but there is a lack of good buy points, and that is going to be a problem until something changes.
At the time of publication, Rev Shark had no positions in any securities mentioned.
