Finally Nvidia stock’s unrelenting upward momentum met resistance last Friday.  The key reversal day in Nvidia stock trading could mark the AI top for the time being.  In order to call this an intermediate top in this AI led rally, we need follow up.  The market needs to follow up with weaknesses in the next 2-3 days.  Next Tuesday we will wake up to February CPI data at 8:30 am.

January CPI data was hotter than expected and in response the S&P 500 declined 1.37% on 2/13/2024.  The logic is such that if inflation kicks up again, the Fed will have a hard time to cut interest rates.  The market continued the AI led rally after one day selloff on 02/13/2024 because the January CPI was discounted as one off event.  If the February CPI data is hotter than expected again, then we have a trend of the resurgence of inflation, which will crush the dream of the Fed cutting rates.  The market will definitely respond negatively.  The entire AI led rally was predicated on the idea that inflation has come down and the Fed will be able to cut interest rates in 2024.  The debate is only about the timing and magnitude of rate cuts.  Hotter than expected February CPI data will definitely upset the Apple Cart.

Below is the S&P 500 long term monthly chart.  In this chart, you can see the defined channel lines very clearly.

The S&P 500 breached the 24-year old upper channel line last week.  The prompt key reversal in Nvidia stock most likely is the signal we need for the entire market to realize that the rally has gone too far and too fast.

The next logical place is for the S&P 500 to pullback to the middle channel line for approx. 10% decline. It’s very likely for the 10% correction to last into May 2024.

Let’s wait for the February CPI data.