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February 23, 2024
 
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The question going into Nvidia's earnings on Wednesday was whether it can beat the lofty expectations, whether it continue to rally and and tack onto the already lofty price, and whether the rest of the market was strong enough to move up and avoid triggering a sell the news reaction.  The answer so far was, yes.  The Dow gained 457-points, while the Nvidia driven S&P 500 and Nasdaq indices gained 3% and 2% respectively.  It wasn't as much of a small caps or I-fund catalyst, but they did come along for some of the ride.

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Nvidia has quickly become one of the largest and dominant companies in the world, and their stock price illustrates its rapid rise.  The question is, does it become another "As goes Apple" stock, meaning as long as Nvidia is doing well, the US stock market will do well?  The chart is in parabolic mode when you look at it since the October 2022 low when it was just over $100 a share.

              


But now the news is behind us, there has been a big reaction, and a set up for some profit taking is certainly a possibility, but so far the chart of the indices haven't gone crazy.  Yes, the S&P 500 has been rising at a rapid pace, but it remains in a fairly conventional ascending channel after recently successfully testing the lower end.

         

The weekly chart does show it nearing the top of a wider, even longer term ascending channel, so it is scraping the top resistance line with a lot of room below.

On the other hand, the S&P 500 is now only 6% above the peak it made back in early 2022 before the bear market began.  That's a 6% gain over two years.  That's not overly excessive. 

         

If I had to guess, which is what we do, I would say that this could at some point in the not so distant future (weeks / months?) pullback to retest the breakout line in the 4800 area (or maybe 4600 at worst).  But that might be a good place to catch some support for another leg higher.

I'm not saying that will happen.  I'm really saying the S&P 500 has come a long way in a short time, but in reality it is not that extended given the gains over the last two years, and while there is a some short-term risk, the bull market could still have legs.

I wanted to follow up on the Dow Transportation Index chart which was testing some very important support this week, and after yesterday's 1.5% rally, it is back above the some of the broken averages like the 50-day EMA as well as the 20-day EMA (not shown but currently 15,789.)  There's an open gap near the recent highs of this market leader, and it's pointing in that direction.

         


It's been quite a month for the stock market with 5 trading days left in February. 
 



The S&P 500 (C-fund) gapped up on the Nvidia news and here we go again.  We have new highs but large open gaps have to be watched and assumed that there could be a push to back and fill it in.  A "gap and go" is also possible, but they are more likely to happen after a major central bank move or comment - not on an individual stock rally.  The chart looks good but in the short term the resistance is apparent.

       


DWCPF (S-fund) was up nicely yesterday but this index doesn't include Nvidia so it didn't have the same explosive move, but impressive none the less.  There's an open gap above and below and it has been flirting with a new high for a while now.  Does it have the strength to get there now that the big news is out of the way? 

       
 

EFA (I-fund) also rallied and again, there was no Nvidia to help here.  It was just the overseas markets reacting to the news.  New highs tell us that this is a bull market for the I-fund, but as always, this chart is full of open gaps that could draw attention at some point in the short term.

       


BND (bonds / F-fund) was flat as yields were mostly unchanged on Thursday.  The trend remains down in what I have been calling a bull flag, but now that it is below the 50-day EMA, I'm less interested in the F-fund.

       


Thanks so much for reading!  Have a great weekend!

Tom Crowley


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S&P500 (C Fund) (delayed)

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DWCPF (S Fund) (delayed)

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EFA (I Fund) (delayed)

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BND (F Fund) (delayed)

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