Here's What I'm Watching That Could Signal Caution in the Market
After Nvidia win and favorable CPI numbers, we're seeing some sell-the-news action; now watch for the close.
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The consumer price index report was slightly better than expected, big banks beat earnings estimates, and Nvidia NVDA gapped up on news that it can start selling an AI chip in China. It is very solid news flow, but so far we have classic sell-the-news action. The indexes and many stocks are just too extended to keep on running at this point, and that is triggering selling into the positive news.
The easiest way to see this is to look at the number of stocks that are trading at intraday highs. My scan of all the stocks in the market shows only a handful of names at intraday, and most are smaller, secondary names.
Another problem is that breadth is running negative with around 4,400 gainers to around 5,000 decliners. But the gap up open produced a surge in new 12-month highs to around 600 names. The Russell 2000 IWM is lagging with a loss of 0.4% while the Magnificent Seven is leading with a gain of 1%, mostly due to Nvidia.
The close will be the key. A close near the lows of the day and under Monday’s low will create a bearish engulfing pattern that is likely to cause increased caution, but this market has had a strong pattern of intraday strength, so we will have to wait and see if the buyers step up again.
Frankly, I’m rooting for some weaker action, because it will create better chart patterns as we head into the next three weeks of earnings reports. It is extremely difficult to find good entry points right now, but some ‘sell the news’ action would be welcome.
Back on June 25, I crowned Nvidia “King of the Market.” It is living up to the title today, and I’m looking to add further to my position. This is a good example of how a giant stock can gain even more momentum as a positive technical setup develops. The King is creating some major fear of missing out among institutional buyers.
At the time of publication, DePorre was long NVDA.
