Nvidia's Big Beat, Software Strikes Back, Are Market's Stars Aligning?

Nvidia's  (NVDA)  earnings had just hit the tape. My 85-year-old dad whom some of you may know and remember as "The Colonel," still trades for himself every single day and is still smarter than his enlisted son. He texted me ahead of the event. 

"Nvidia's going to beat the street decisively." 

He was obviously correct. My 88-year-old uncle, who still invests for himself, though not as aggressively as me or my dad, or on a daily basis, texted me after the numbers were out. 

"What are you doing in Nvidia tonight, should I buy more?" 

I told him that I still own the stock, but I am not adding right here and probably would not unless the price dipped. 

That seems to be how Wall Street reacted to the most important release of the season. Earnings beat. Revenue crushed expectations, while growing more than 73%. Wow! Guidance beat, without assuming any data center-driven revenue from China-based clientele. "Wow" is the only appropriate response to just how well Nvidia is executing its business and just how aggressive the up-spend on the development of, and on infrastructure for generative and agentic artificial intelligence, still is. The stock traded higher in the immediate aftermath of the release, but not as aggressively so as one might have thought.

Thursday seems like anyone's ball game. It is still really the middle of the night as I work toward the opening bell. I'll be back in a couple of hours with an in-depth look at what Nvidia released last night. I'll also be filling in for legendary hedge fund manager Doug Kass over at his Diary today, so if you get the chance, drop in and stay a while. We'll talk markets, we'll talk economics, and we'll probably even talk some baseball. Catch you kids down the road a bit.

Software Fights Back 

On Wednesday evening Nvidia CEO Jensen Huang discussed the recent software industry-wide market meltdown: "I think the markets got it wrong." 

Huang went on to say that he expects many companies to adopt agentic AI to build better products or platforms and improve efficiency. At the cost of demand for labor? Huang did not go there. He did say that agentic AI "won't eliminate existing tools but will rely on them."

That sort of fits with the most recent message sent by Anthropic, whose Claude platform has been seen as the most obvious disruptor across that space. Huang cited software companies such as Microsoft  (MSFT) , Cadence Design  (CDNS) , Synopsys  (SNPS) , ServiceNow  (NOW)  and SAP  (SAP)  as providers whose products and services "exist for a fundamentally good reason" and providers where agentic AI "would help us be more productive."

Markets 

Just like that... Monday's Citrini Research-inspired risk asset beat-down was nothing more than a memory. A lousy memory to be sure, but a memory. The piece published by Citrini has been labeled by some a "work of fiction," which is something that they more or less told us, but they did warn not to ignore the message. Anthropic appeared to switch sides and put on the friendly face. All was nice. For a second straight trading session. 

The Nasdaq Composite gained 1.26% for the session, supported by a 3.1% run by the Dow Jones U.S. Software Index and a 1.62% pop for the Philadelphia Semiconductor Index. The S&P 500 tacked on a more modest 0.81% as the small to mid-cap indexes all gained ground, despite underperforming the broader market. Of all of the U.S. equity indexes that I track, only the Dow Transports closed in the red as the large truckers all took a hit. Interestingly as software fought back, so did the banks that had also been damaged earlier this week.

Breadth 

Only five of the 11 S&P sector SPDR exchange-traded funds closed out the Wednesday session in the green. That said, the winners were led by Technology  (XLK)  and the Financials  (XLF)  as those two funds added 1.92% and 1.75% respectively. Though six of these funds closed in the red, the losers were paced by the Staples  (XLP)  at -0.81% and two of the three bottom rungs on the daily performance tables were occupied by defensive type sectors. 

More importantly, we move on to the market landscape. Winners beat losers by a pedestrian seven-to-five margin across the NYSE, but by a more convincing two-to-one at the Nasdaq. Advancing volume took a 66.8% share of composite Nasdaq-listed trade and again, a somewhat pedestrian 54.6% share across composite NYSE-listed trade.

Perhaps this last piece of information is more telling. Aggregate trading volume expanded on a day-over-day basis, by 6.2% across Nasdaq-listings, and just 0.2% (still expansion) across NYSE-listings. Trading volume also expanded across the membership of the S&P 500. 

What Does That All Mean?

Take a good look at Wednesday. 

It won't be too difficult for readers to see that the S&P 500 ​did in fact recapture its 21-day exponential moving average and 50-day simple moving average. That brings both the swing crowd and the pros deeper into the bullish camp. Recall how important it was, I told readers earlier this week, for the S&P 500 to not lose contact with those key moving averages. It did not. Now, you have net additions on increased trade. That's important.

The fact that the high of the day on Monday was taken out, erases that day as a "day one" reversal of trend. The S&P 500 on Thursday, will also have a chance to take out the Feb. 12 Confirmation of Bearish Trend. If the index could take out the Feb. 3 reversal, which may be a stretch, it could be "game on" as professional managers race to reload.

This crew had been forced out of certain parts of the market by risk managers whose market exposures are often under-developed due to the fact this position just did not exist years ago and none of these "kids" went through the Crash of '87 or the "Dot-Com Bubble." Sorry. I know the 2008/09 meltdown was awful, but it happened in slow motion. Unless you get through those earlier crashes (and nothing I've seen since even compared to '87) you have not been baptized by fire, financially speaking.

Note that above the chart, Relative Strength is now better than neutral. below the chart, within the daily moving average convergence divergence, the histogram of the 9-day exponential moving average has now moved above zero as the 12-day EMA crossed above the 26-day EMA. Both of those events are short-term bullish. Should the 12- and 26-day lines move above the zero-bound with the 12-day line above the 26-day line, this becomes a medium-term bullish signal and would be more meaningful in my opinion.

What Am I Getting at Here?

Are you saying the market has turned? Let's put it this way. I'm saying the stars are aligning. Yes, there is a real possibility. No, I cannot yet say for sure. If Wednesday was a "Day One," we'll still need to see a confirmation. Be flexible. I told my uncle that I wasn't adding. I also told him that I wasn't making sales here, either. Let's see if there is some momentum. Thursday still could lean on Nvidia, even without the overnight reaction that some were looking for. There was a lot of dough invested on the call side in this name that expires Friday.

"Life was not intended to be simply a round of work, no matter how interesting and important that work may be. A moment's pause to watch the glory of a sunrise or a sunset is soul-satisfying, while a bird's song will set the steps to music all day long."

- Laura Ingalls Wilder (1867- 1957)

Get outside this morning. Catch that sunrise. Listen to those birds. Show someone you love. Then get back to your desk and make some dough.

Economics

(All Times Eastern)

08:30 - Initial Jobless Claims (Weekly): Expecting 214K, Last 206K.

08:30 - Continuing Claims (Weekly): Last 1.869M.

10:30 - Natural Gas Inventories (Weekly): Last -144B cf.

11:00 - Kansas City Fed Manufacturing Index (Feb): Last -2.

The Fed 

(All Times Eastern) 

10:00 - Speaker: Reserve Board Gov. Michelle Bowman.

Today's Earnings Highlights (Consensus EPS Expectations)

Before the Open:  (HRL)  (.32),  (SJM)  (2.26),  (WBD)  (.02)

After the Close:  (CRWV)  (-.49),  (DELL)  (3.53),  (INTU)  (3.68),  (RKLB)  (-0.5),  (ZS)  (.90)

At the time of publication, Guilfoyle was long RKLB, NVDA equity.