The entire financial complex is currently hanging by a thread. Or rather, a microchip. As Nvidia (NVDA) prepares to step into the earnings spotlight, market participants are laser-focused on top- and bottom-line beats, forward guidance, and artificial intelligence infrastructure backlogs.
Not me. I’m looking past the earnings “event” itself. Here’s why.
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The actual numbers in the report matter far less than the broad market’s structural reaction to them. Because both the stock market and interest rates are on the edge of breakout moves. In the wrong direction. Similar to 2022, when bond rates rose, and that caused bond and stock prices to crater.
Here’s a reminder, using SPY from the first nine months of 2022. I know, it is hard to remember back when SPY, now trading north of $700 a share, was at $460 or at $340. But that was the downward path four years ago.
www.barchart.com The technical reality is that the major stock market indexes simply cannot advance much further without Nvidia leading the charge. The stock has recently lagged behind its long-term historical trends relative to the tech complex, yet it has grown to command a staggering weight within the Invesco QQQ Trust (QQQ), around 8.6%.
www.barchart.com And in a statistical rarity, NVDA is also 8.6% of the SPDR S&P 500 ETF Trust (SPY). This extreme concentration means Nvidia is functioning as the market’s director, dictating the narrative not just for day traders, but over a multi-month horizon.
While the long-term, life-changing impact of artificial intelligence is undeniable, from a purely tactical perspective, the AI trade is flashing clear signs of being overhyped. This makes the reaction over the next several weeks, not simply the knee-jerk version this week, that much more critical than in past quarters.
www.barchart.com Frankly, I can see NVDA’s chart (daily view above) going either way. There’s an uptrend in place, a “wall of worry” picture essentially. But the PPO indicator at bottom is saying “you’d better keep moving higher steadily, or the downside could be fierce.”
Meanwhile, the underlying stock market is remarkably fragile. The broader SPY looks significantly better than the vast majority of individual stocks inside it, heavily masked by a 15% rally since late March.
The ultimate risk is that the market is entirely unprepared for any sudden withdrawal of confidence in AI. If the reaction to Nvidia’s results falters, the narrow breadth of this equity bull market will be exposed, leaving the major indexes highly vulnerable to a sharp reversal.
NVDA’s $10 Trillion Aspirations: About to Continue, or Get Stopped in Their Tracks
www.barchart.com At nearly $5.4 trillion in market as of Tuesday’s close, NVDA is truly one of a kind. In fact, some on Wall Street have said it can be considered its own economic sector. Since its size is greater than or about even with seven of the 11 S&P 500 sectors (pause, think about that for a second, then continue reading), that argument is not farfetched. But it could also be one of those things we look back to years from now and say “everyone knew that the market cycle was topping when we saw that.”
Ah, but it is so much easier to say that in hindsight. Let’s see what the next few weeks, post-NVDA earnings, bring. With bond and stock prices teetering, this quarterly event for the world’s biggest company looms larger than ever.
Rob Isbitts created the ROAR Score, based on his 40+ years of technical analysis experience. ROAR helps DIY investors manage risk and create their own portfolios. For Rob’s written research, check out ETFYourself.com.
On the date of publication, Rob Isbitts did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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