Chart Advisor: Nvidia, Nvidia, Nvidia

By Jay Woods, CMT

1/ Nvidia, Nvidia, Nvidia

2/ Fed’s Preferred Inflation Gauge – PCE

3/ Fed Speak

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Nvidia, Nvidia, Nvidia

Despite the fact that the S&P 500 made two new all-time highs last week, another Friday sell-off has markets on edge as we enter this week.

Investors took risk off the table heading into the weekend as inflation concerns continue, tariff uncertainty lingers and a drop in consumer sentiment increased.

This week could prove to be a critical test for the markets as one of its biggest stocks in Nvidia reports earnings. We also get a key piece of inflationary data in the PCE that may shape Fed policy. On top of that there are several Fed speakers making the rounds.

Let’s dig in…

You are here…

The S&P 500 is just two days off of all-time highs, yet investors appear braced for further weakness. If one were to compare this moment in time to another historical moment in market terms, the set-up appears to be similar to the February before Covid in 2020.

We saw a shift out of momentum stocks that had been on a tear as traders looked to safer havens for value. Gold hit all-time highs and foreign markets continue to outperform the U.S.

As for the S&P 500, we are seeing some signs of a near-term top. We closed right at the 50-day moving average after failing to confirm the breakout to new highs as we reversed course late in the week.

If we see continued weakness watch the 100-day moving average (in green) to be the next level of potential support. The index has only closed under that threshold three times over the last 12 months.

One level we haven’t tested since the end of 2023 is the rising 200-day moving average. If we were to experience a bigger and faster drop this would be the level every trader will hone in on. There is major support at the 5650-5700 area if we were to experience a more impactful drop.

Oddly enough there was one megacap stock that broke out before the S&P started its epic run back in late 2022 – that was Nvidia. It was a leader then. The question is – will it be a leader now?

It has already made its downturn and tested its 200-day moving average, will the S&P 500 follow it again? We may find out soon as all eyes will be fixated on their earnings.

Nvidia Earnings. The second biggest company in the world based on market cap as well as the poster child for all that is AI reports earnings on Wednesday afternoon. It’s so important that it gets its own section here.

What three things will investors be watching and, more importantly, be listening for when they report?

Blackwell chip. Sales of the high end chip are supposed to contribute substantially to the firm’s bottom line. Analysts are expecting $38 billion in quarterly revenue. How is the rollout continuing? Are they meeting current demand and how does future look?

DeepSeek Questions. In January, Chinese startup DeepSeek introduced an AI model that is supposed to rival that of Nvidia and all competitors. It claims to be cheaper and take far less energy to power. When news of this broke all semiconductor chips sold off. Nvidia dropped close to 25% after that news. While it has made back half of that loss, questions still linger about this possible competitor. Will CEO Jensen Huang address this?

Guidance. This is two-fold. First, given the continued capex spending by major customers in Meta, Amazon and Alphabet, can they meet the demand? Secondly, they have a history of upping projections for future earnings. Will this trend continue or are there growth concerns given global competition and inflation concerns at home?

Then there are the technicals. Let’s look at historical and recent price action.

On a daily basis…

Shares broke below its 200-day moving average after the DeepSeek news hit. They recovered from that sell-off but continue to be in a near-term downtrend.

While the range is starting to narrow, it sets up investors with some critical levels to watch. A negative reaction puts those recent lows black in play. First watch the $126 area – that’s a former support level that failed to hold initially, but was recaptured. It also coincides with the 200-day. That is the first downward area of interest on weakness.

Any break below there and look to the recent lows at $113 to hold. A break to these levels should delay any major rally for another earnings cycle.

The bulls want to see that recent downtrend line just above $140 break and run towards all-time highs at $150. If we can get a run there then the worst case is we pause and trade sideways a little longer. A break above $150 and a targeted run to $180 is likely.

Now on a weekly basis…

Both Nvidia and the S&P 500 bottomed in October of 2022. It was Nvidia that broke out to new highs six months before the S&P 500. This signified its importance and leadership in this market.

Now looking at price action through a longer time horizon lens, we have seen shares break a long-term uptrend going back to 2022. Shares have trended sideways since July but can’t seem to break out of this neutral range. Ironically, the S&P 500 is struggling to break and stay above its recent range. A strong result could not only help Nvidia take that next leg higher, but it may lift the overall market as well.

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Fed’s Preferred Inflation Gauge – PCE

PCE. Here we go again – the Fed’s preferred inflation number will be released on Friday. Leading into this week’s number we have seen inflation numbers in both the CPI and PPI come in hotter than expectations. Yet, the market was able to withstand the news.

Much of the hotter data has been written off to seasonal effects and conditions. Expectations are for the core number to decrease from the current 2.8% to 2.64%. If numbers do come in in-line, that could be a positive catalyst for a market that could use some good news.

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Fed Speak

Fed Speakers. There’s no shortage of Fed spreaders making the rounds this week. It will be interesting to hear their thoughts on recent inflationary data in the CPI and PPI that did not help their argument to defend potential rate cuts going forward.

The most intriguing speakers slated to talk happen to be the two dissenting voters when the Fed cut rates at the end of last year. Both Michelle Bowman and Beth Hammack speak on Thursday ahead of Friday’s PCE.

The only scheduled speaker at this time to talk after the PCE data drops on Friday morning is New York President John Williams. It will be interesting to hear their commentary and see if it has market moving capabilities.

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Originally posted 24th February 2025