Chip maker NVDA reported quarterly results last night and easily beat analyst expectations, surging to record highs in after-hours trading. A blowout quarter in NVDA fuels the potential for another tech-driven rally. The bellwether tech name opened strongly but gave up most of its daily gains and ended up 0.47 points or +0.10%.
S&P 500 Index, Nasdaq Composite, NDX 100 Index, and others looked like a promising opening on Thursday. However, buying quickly faded as investors continued to fear the Fed’s restrictive policies of keeping interest rates higher for longer.
Investors will monitor Powell’s speech at Jackson Hole tomorrow. If investors do not like what they hear from the Fed chairman, this may trigger a broad market selloff.
The Fed Funds futures are pricing an 83% probability that the Fed will hold the target rates unchanged at 5.25%-5.50% after the September 19-20 FOMC meeting. However, the odds for another quarter-point hike in November are now 42%.
The S&P 500 Index (SPX) fell 59.70 points or 1.35%. The Dow Jones Industrial Average (INDU) declined 373.56 points or 1.08%. The Nasdaq Composite (COMPQ) and Nasdaq 100 Index (NDX) sank 257.06 points (-1.87%) and 331.61 points (-21.19%).
Market breadth turned negative throughout most of August’s market downturn. After SPX peaked at 4,607.07 (7/27/3) it fell 271.76 points or 5.90% in 16 trading days, finding support at 4,335.31 (8/18/23) or just above the Jun 2023 breakout (4,325.28), 6/26/23 low (4,328.08), and the 38.2% retracement from 3/13 to 7/27/23 rally).
The primary trend from Oct 2022 bottom (3,491.58) remains intact as long as SPX maintains above crucial intermediate-term support near 4,198 (Oct 2022 uptrend), 4,195 (May 2023 pivotal breakout), 4,142 (200-day ma), 4,114 (61.8% retracement from Mar-Jul 2023 rally), and 4,048-4,049 (Apr/May 2023 higher lows).
Nonetheless, today’s negative outside day warns of further near-term selling as it marks the fourth bearish reversal pattern (7/27, 8/4, 8/10, and 8/10/23) since the late-Jul 2023 peak.
Also, today’s rally quickly faded near key initial resistance, corresponding to the Jun 2023 highs (4,448.47-4,458.48) and the 50-day ma (4,458.90). The daily reversal reinforced a right shoulder to a 3-month head and shoulders top.
Violation of neckline breakdown below 4,328-4,335 warns of a decline of 278.99 points, rendering an SPX target of 4,049 or near crucial intermediate-term support. Will this help alleviate an overbought market condition from the Mar 2023-Jul 2023 rally and allow for the resumption of the Oct 2022 primary uptrend?
Interestingly, popular indexes such as INDU, NYA, COMPQ, NDX, MID, and SML also show 3-month head and shoulder tops, suggesting further selling in US stocks is likely before the end of the consolidation phase.
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