On Tuesday, the U.S. stock market exhibited a mixed performance, as the Dow Jones Industrial Average managed a slight rise, while the S&P 500 and Nasdaq indices continued their downward trajectory. Recent patterns suggest that the Dow may be forming a double top, indicating a potential period of volatility and downward movement in the short term. Both the S&P 500 and Nasdaq are trapped in a high-level consolidation pattern, edging closer to key support levels. The ability to maintain this support could be crucial; a breach may herald a deeper market correction.
The Philadelphia Semiconductor Index has formed a symmetrical triangle, with recent days witnessing a break below critical support. If this downward movement is validated, the odds of a continued downtrend significantly increase. In the short term, the index has oscillated within a trading range but has swiftly retraced to its support level, which currently holds firm. However, any further declines could trigger a wave of panic selling among investors. Notably, Nvidia's earnings report, scheduled for Wednesday evening, is being closely watched as a bellwether for market direction.
Meanwhile, the real estate sector within the S&P has shown signs of reversal, trending upwards following a rebound. Although there is still significant distance to cover before reaching previous highs, this upward momentum is a positive indicator. In contrast, the S&P Biotechnology Index quickly faltered, retracting back to its support level after an optimistic start. Should it breach this support, another dip toward the subsequent support zone would likely ensue.
Gold has recently reversed its trajectory, breaking new highs and currently trending upward. In the past few days, it has oscillated near peak levels, showing resilience against any declines below the upward trend line. Silver, however, also faces challenges as it attempts to break through its own upward trajectory, showing signs of a correction without yet violating its trend line. If broken, it could fall back to the initial levels of this price movement.
On the commodities front, crude oil futures have encountered a brief rebound but swiftly retreated again, suggesting another round of downward movement may push prices back toward recent lows. The oil and gas stocks followed a similar path, experiencing an uptick before again breaking support, leading them to new lows as well.
Recently, news surfaced regarding Tesla's stock price tumbling below the $1 trillion market cap threshold, impacting its partners like Supermicro, which saw its stock surge as it submitted delayed financial reports. Following a substantial uptick in interest, Supermicro's surge underscores the varying fortunes of companies tied to high-profile partners.
Futures for the Dow rose slightly post-market, mirroring gains in S&P and Nasdaq futures, as anticipation builds ahead of Nvidia's earnings report.
The performance of equities on Tuesday was characterized by volatility, particularly among high-valuation growth stocks, which remained under pressure, with Tesla and Hims & Hers among the most significantly affected. Meanwhile, defensive stocks, including discount retailers and insurance companies, held their ground amidst a declining bond yield environment as investors gravitated toward safe havens.
Turning to critical earnings reports, Axon had a standout quarter, exceeding expectations and reaching a record revenue high, prompting a considerable jump in stock price during after-hours trading. However, this uptick merely recovers a fraction of the losses following Axon's significant drop since February. Conversely, Supermicro’s performance spurred by its delayed financial reporting highlights the uncertainties facing these companies amid increased scrutiny.
Wednesday's focus will shift quickly to Nvidia's earnings, as its stock price dipped on Tuesday, testing a crucial support level in the wake of broader market pressures.
In the broader market context, the stock exchanges saw fluctuating performances, but the overall trend remained frail over the past week, particularly in high-value growth sectors. Concerns remain regarding consumer sentiment signals hinting at an economic slowdown, persistent inflation, and looming tariffs.
The Dow Jones Industrial Average increased by 0.4% during trading, touching the 50-day moving average resistance level, while the S&P 500 fell by 0.5%, dipping further below the lows observed earlier in February. The Nasdaq Composite dropped by 1.35%, closing at its lowest point in three months as it relinquished some earlier gains.
Hims & Hers' stocks plummeted by 22%, despite a robust earnings report, with declining margins raising long-term sustainability worries over its weight-loss products. Currently, Hims' stock is down 45% from last week's peak, reflecting broader pressures on the growth sector.
Many other high-valuation technology stocks also continued to struggle, with the likes of AppLovin and Palantir Technologies facing substantial declines. In contrast, several other technology stocks experienced milder drops, with Meta Platforms declining 1.6% amidst its sixth consecutive day of losses after significant price drops in previous weeks.
On the upside, Brown & Brown enjoyed a notable breakout, bolstered by robust earnings across several insurance firms. Walmart's shares climbed 4.3%, bouncing back above the 50-day moving average, illustrating some resilience in defensive sectors amid broader market volatility.
U.S. crude oil prices fell by 2.5%, marking their lowest close since December 10 at $68.93 per barrel, while the 10-year Treasury yield dipped by nine basis points to 4.3%.
When evaluating the growth within certain ETFs, the iShares expanded tech software industry ETF slipped by 1.6%, while the VanEck semiconductor ETF fell by 2.1%. Nvidia remains a key holding in the latter. The ARK Innovation ETF, led by Cathie Wood, saw a notable decline of 5.2%, with the ARK Genomics ETF falling by 5.1%, indicative of the pressures on growth-related stocks that the firm heavily invests in.
The SPDR S&P Metals and Mining ETF declined by 1%, while the select sector SPDR funds reported varied performances—Healthcare up by 0.9%, and Industrial Select up by 0.5%, while Financials barely slipped below the breakeven point. Consumer staples proved to be a haven, with their sector ETF climbing 1.4% to a five-month high, highlighting a defensive market response.
As for Nvidia, its stock fell 2.8% to $126.63 after decisively breaking below the 50-day moving average on Monday. Following a turbulent January and early 2023 due to AI-related pressures, Nvidia's stock is displaying an unattractive double-bottom pattern.
The upcoming earnings report from Nvidia is pivotal, as market participants are eager to assess the production and demand surrounding its Blackwell AI chips amidst increased competitive landscapes, especially from emerging Chinese players and established companies like Broadcom.
The earnings guidance provided by Nvidia will be essential in determining market sentiment, particularly related to several other AI chip and hardware rivals.
Lastly, Tesla shares faced a sharp decline of 8.4% to $302.82, marking the steepest drop in seven months. Market data indicated that Tesla's market cap fell below the $1 trillion mark, ending at $974 billion. The stock tested the crucial $300 level during intraday trading, with the next support appearing at the 200-day moving average.
Current pressures on Tesla's brand in both the U.S. and European markets raise concerns. The company is set to begin deliveries for its revamped Model Y in China on Wednesday, which could serve as a key catalyst for growth in its electric vehicle segment this year.
In the face of ongoing market struggles, particularly within tech stocks, a cautious approach to investing is advisable. Maintaining liquidity through cash positions may be a prudent strategy as high-growth leaders might need considerable recovery time. The standout performances in the defensive sectors present opportunities, albeit the potential market rebounds could shift funding away from safe havens swiftly. Factors surrounding Nvidia’s earnings could greatly influence market sentiment, warranting close observation amidst ongoing volatility.
By staying vigilant and crafting a watchlist, investors can position themselves to capitalize on future upward trends while protecting their capital base as the market navigates these turbulent waters.