By: Jeff Cooper

Hit and Run Trading Morning Report - May 22, 2024

Does NVDA Need To Beat?

“So beat it, just beat it”
-Beat It, Michael Jackson

The Poster Child for Chips, The King of AI reports after the bell today.

Does it need to beat estimates to keep SPX above its recent 4 day flat?

The SPX sports a nice Bull Flag right? Just like the Bull Flag one day before the early January 2022 top?

Just like the Bull Flag one day before the February 2020 top?

Think about those patterns.

Does NVDA need to blow out to get the NDX to extend its breakout of a week ago?

This week has been about one thing: NVDA.

NVDA has not only accounted for 5.24% of the price advance in the SPX but has had a massive psychological impact on the index itself in 2024, driving the SPX higher.

You think markets aren’t ordered?

Notice how the King stalled out 100% up from the low of the year.

That move perpetuated a deep pullback perfectly mirrored by the market into April 19.

Clearly NVDA and the market are inextricably linked.

Is NVDA going to rocket out of a Cup and Handle or is it carving out a pernicious Triangle Pendulum sell setup shown in yesterday’s report.

See chart here again of NVDA’s potential Triangle Pendulum pattern:

If NVDA spikes after the bell today, the Square of 9 Wheel indicates key levels are the upper 990’s and the 1017 region for possible square-outs.

If that occurs based on square-outs on the table in the market and cycles poised to exert their downside influence heads up for a Spike & Reversal.

To recap the prior, initial SPX high from March 28th of 5265 (526) squares-out with this week.

If NVDA  pops and drops it has a 20/50 moving average Bow Tie at 886-889. Below that, get out of Dodge.

In sum, this week, the anticipation of NVDA’s quarterly report after today’s close has produced a significant distortion for the market.

Those expectations have propped up the SPX both because of NVDA’s weighting and because of the expectation that it has produced for the entire market:

In the above chart, notice that since May 6, the SPX has advanced 140 points. Most of that advance has been produced by the advance of component NVDA and by the psychological impact of NVDA on traders.

However, notice, too, that since May 6 close, NYMO has DECLINED by 50 points.

That decline reflects the severe underperformance of the NYSE issues relative to the SPX.

In a nutshell, the broad market has fallen far short of the gains in NVDA and SPX itself.

For example, as SPX advanced +13 yesterday, NYSE breadth was -138, and NAZ breadth was – 704. This broad market underperformed daily this month, and the cumulative impact has become extreme.

This disparity has set up a series of sell signals: the discrepancy between the outperforming NVDA effect on SPX and the underperforming NYSE market overall is setting up a sharp reaction once that quarterly report is behind us.

Ultimately, we believe this disparity has grown so large that it will not matter whether NVDA’s report beats or misses expectations. Will it be shown its competition is making inroads?

The bottom line is the SPX has moved far ahead of its other 499 components. And a significant correction will be necessary to realign the markets overall.

That’s the bull case.

Further, once that correction begins, I believe, it will broaden into the general decline markets have signaled for many weeks.