Nvidia had a blowout earnings report last Wednesday and the market went crazy with Nvidia’s bright future.  At this point, the market uniformly agrees that Nvidia is not expensive and its number one leadership in AI is secure for the next few years as a minimum.  Nvidia is a semiconductor hardware company, but the market is already envisioning Nvidia pivoting to be a service company in the future like what Apple has done.  In summary, nothing can go wrong with Nvidia and investors should hold the stock without worries.

We agree that Nvidia fundamentally is a beast and nothing is wrong with Nvidia at the moment.  Even when the competitors get closer to Nvidia, they can never take out Nvidia.  Nvidia has the first-mover advantage.  Nvidia could well turn itself into a hardware and software company for AI.  The funny thing about the stock market is such that when everyone agrees to something and that’s when something bad could happen.

Historically Nvidia is a volatile stock.  It declined 70% from the November 2021 bitcoin bubble to October 2022 low.  A super great company like Nvidia will be subject to market fluctuation just like every other stock.  We believe Nvidia is approaching an intermediate top right now.  It’s very difficult to call an intermediate top against such a super great company, but tops are typically made when the market is melting hot bullish like now.

Nvidia gap opened on Friday morning and then made a brand new all time high at 823.94 at 9:40 am.  From the 823.94 open high, it went to produce a hard sell signal by 11:10 am.  Then the usual dip buyers came in but failed to reverse the sell into a buy signal.  And it closed near the low of day.  The Friday intraday trading sequence showed exhaustion of buyers.  Nvidia gapped higher on the opening because the shorts were throwing in the towel.  They have been wrong all these time and they were willing to pay up to whatever it took to liquidate in the first 10 to 15 minute of trading.  That’s what made the market gap open higher to begin with.

If indeed 823.94 is an intermediate high, we shall see a selloff from this high and then followed with dip buyers in the next few days.  It’s better to short or buy puts when the re-test of 823.94 fails.

On March 10 2000 the NASDAQ had the same intraday trading sequence and that day proved to be the high of the DOTCOM bubble.  We are not saying Nvidia is in a bubble that will suffer a DOTCOM styled crash after this high.  We are calling an intermediate high and a pullback should follow.

We blogged before that S&P 500 could reach 5110 before a pullback.  The S&P 500 did touch 5111.06 last Friday.  From the 4-year cycle perspective, the S&P 500 reached its cycle price projection and as well as time projection.

We have been waiting for the 4-year cycle top since we decided that the October 2023 low is not the starting point of a new 4-year cycle.  The mega tech led rally from the October 2022 low has been driven by AI.  With the AI leader Nvidia’s earnings out of the way, now the market will turn its attention to macro events.  Inflation and Fed will be the focus.

The market was counting on 6-7 rate cuts starting in March 2024 back in December 2023.  The Fed officials have come out since December Fed meeting to pour cold water on the market’s wishes on aggressive rate cuts.  The market has accepted that there are maybe 2-3 rate cuts starting in June 2024.  The consensus is that the interest rate has peaked and rate cuts will come in 2024.  What if there are no rate cuts in 2024 or even rate hike???

The January inflation came hotter than expected.  The Fed’s favorite inflation data January Core PCE index will be released on February 29.  February inflation CPI will be released on March 12.  The Fed will have these two inflation data before March 19-20 meeting.  The data could be showing sticky inflation and the Fed probably will say something like data dependent to leave the market to guess its next move.

The guessing game is what will drag the market down to finish the 4-year cycle that started in March 2020.  We count cycles from low to low.

If the 4-year cycle works its magic, we should see the market to go down from here to make a low in May.

Below is the S&P 500 daily chart.

Nothing in the chart suggests a top is in place.  We believe that the 4-year cycle top was made last Friday but we still need to be open minded about the possibility that we could be wrong.  Nothing is for sure in the stock market.