Market leader NVDA earnings report a “Non event”

Technical Stock Market Briefing for Day & Swing Traders
| By Harry Boxer, Technical Market Analyst

Stocks have staged an impressive recovery, ending at or near record highs depending on the index.

The gains came off the near 10% correction in early August and were supported by a still expanding economy, positive earnings growth, and a Fed that is indicating that it’s ready to ease.

Lofty expectations are a headwind for the tech heavyweights, which relinquished leadership last month. At the same time, the broadening earnings growth is helping the laggards make a comeback, as the recent volatility worked to their advantage.

 The Tech sector iseems to be losing some of its momentum, as comparisons get tougher and valuations are full. As a rersult, the S&P 500 (+18.4% YTD) has now pulled slightly ahead of the Nasdaq Composite index (+18.0% YTD) as to gains on the year.

Last week all eyes were on NVIDIA, the clear leader in AI development, and the excitement it has generated.

NVIDIA now represents over 6% of the S&P 500 and has a market capitalization of $3.1 trillion, second only to Apple . Given the stock’s significant influence on the index and its 150% rally this year, the company’s quarterly earnings report was one the most anticipated releases of this earnings season.

For all the excitement, NVIDIA’s results did not change the market narrative, nor did it trigger a big reaction across the tech sector. But the results highlighted a headwind that the mega-cap tech winners face: that of lofty expectations. NVIDIA exceeded consensus estimates on second-quarter sales, earnings, and third-quarter guidance, but it did so without blowing them away to the same extent that it had in prior quarters.

Because of tough comparisons from a year ago, growth may inevitably slow in quarters ahead for NVIDIA, and more broadly, for the Nasdaq Generals. Those companies, that have led this year’s gains, have experienced relative strength deceleration. Together with elevated valuations, market heavyweights could spend some time consolidating and retesting , possibly taking a back seat for a change.

Unlike the first half of the year, a broader range of sectors and stocks are now driving the current rally, indicating a gradual shift in market leadership is taking place.

The next two-month stretch that will lead to the November election day has historically been seasonally challenging for stocks, with bigger daily fluctuations and lower returns.

The potential for volatility to reemerge highlights the importance of technical trading discipline.

In any case, closely monitor the technicals and “Trade What You See, Not What You Think”