Stocks on Watch After CPI-Fueled Breakdown: SPX, Nasdaq, NVDA

Stocks, SPX, Nasdaq, NVDA Talking Points:

• After holding a big spot of support yesterday, S&P 500 futures are showing a bearish engulf on the daily, as of this writing.
• Another key spot of support is in-play from a prior swing high for the S&P, but perhaps more important is the shift under the surface, where former high-flyers like NVDA have started to show lag.

I looked into this in the five charts for this week video, but the bearish engulf on the weekly chart of NVDA from last week was disconcerting. Perhaps more telling was the mismatch from the fundamental backdrop, where a massive buyback announcement of $235b has, effectively, brought little net interest to the long side of the stock. The full video is below, and there I was able to elaborate in greater detail how this countered an otherwise bullish backdrop for both the Nasdaq and S&P 500.

NVDA Bearish Engulfing Spells Trouble for AI Stocks

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S&P 500

From the daily chart there’s a big spot of support that’s in-play, and as I’ve looked at in the past, it’s been the late-week rallies that have been most noticeable in stocks. So, there could still be a case for bulls here especially if we see some buying interest ahead of today’s close. For bears, however, they would probably want to be more tactical if honing in on the S&P, or, they could look elsewhere, like the Nasdaq or NVDA to try to harness relative weakness elsewhere.

S&P 500 Futures Daily Chart

Chart prepared by James Stanley; data derived from Tradingview

S&P 500 Shorter-Term

Coming into the day there was a notable bounce from a big spot on the chart, but since the CPI print, bears have taken a huge swing. As noted above, sellers would likely want to take a tactical approach here and given that prior support structure, there’s a couple of spots where lower-high resistance could play.

The 7798-7808 zone sits just overhead, and above that, it’s the 7838-7848 zone that was in-play twice earlier this week before the breakdown this morning. In between the two, which I’d consider as an ‘r2’ area of resistance right now, is 7822.

S&P 500 30-Minute Chart

Chart prepared by James Stanley; data derived from Tradingview

Nasdaq

In the above linked video I had highlighted how the Friday rally in the S&P 500 wasn’t quite mirrored in the Nasdaq, although, at the time, there was still a bullish case that could be made as there was support showing at prior resistance.

That has since shifted and the Nasdaq is breaking down, setting a fresh monthly low (almost fresh two month lows) and testing the price that had held support three times in late-September.

Below this, the 30k level is a major spot that hasn’t been in-play since the post-Fed breakout/rally.

Nasdaq 100 Daily Chart

Chart prepared by James Stanley; data derived from Tradingview

When the Leaders Lag

The rally in NVDA has been massive from the 2022 lows, when it traded at a split adjusted $14 per share. And, obviously, many still holding long have some level of motivation to take profits, and this is why any rally will probably never be truly linear.

But when weakness shows even in a seemingly positive backdrop, something is amiss, and that may be a sign of things to come.

In late-September NVDIA announced an increase in their stock buyback, to total $235 Billion. This is more than a megacap of their own stock yet, at this point, price is lower than it was then.

This isn’t something that can be dialed back to performance, either, as the last quarterly report showed robust growth and the company is ostensibly doing well, with widespread support from the current administration.

Yet, the stock price has continued to go down…

Last week showed a bearish engulf on the weekly and that’s a formation often approached with aim of bearish continuation. That’s precisely what’s played so far this week and if the golden driver of the post-2022 recovery is getting hit, this could be sign that interest rates are taking their toll on the AI trade and, unless some relief is soon seen, this could develop into a much deeper sell-off type of scenario.

As for levels – the 210 spot is important, as this was the last swing low before the rally up to a fresh ATH, and it was also a key point of prior resistance. It’s also confluent with a bullish trendline and if a test at that price doesn’t bring buyers in – and – instead, brings more sellers, we could be looking at a much different macro scenario before too long.

NVDA Weekly Chart

Chart prepared by James Stanley; data derived from Tradingview

--- written by James Stanley, Senior Market Analyst, Global Macro