Tech & Nvidia Down Sharply! What’s Next?

10 September 2024

Below is a transcript from Monday's Morning Market Hit video above (charts are at the bottom).

Welcome to Shortview Trading. My name is Chris Watling, I'm the CEO and Chief Market Strategist of Longview Economics and Shortview Trading, and this is your Morning Market Hit for Monday, 9th of September. It's around 10:00 a.m. London time.

So, if you want to invest in equity index futures, go long or short S&P 500 futures, NASDAQ 100 futures, FTSE, DAX, or other equivalent equity index futures, how should you go about that? What should you think about? What factors should you take into account, and how should you go about implementing a long or short trade on those equity index futures? That’s what we’re going to dig into in this video.

The first thing you want to do when you're thinking about implementing a long or short trade is consider the context of the market. What’s the price action? How are different asset classes behaving? How are they relating to each other? How's the equity market behaving? What about the internals of the equity market? And what about the equity market across the globe?

If you look at last week, it was brutal. It was a brutal week for equity markets globally. U.S. equity markets were down across the board, led by tech and specifically within tech by the Philly SOX, which was down around 12% last week alone. There was also weakness across the global landscape. In Europe, all equity markets were down, led by Holland, with the Dutch market particularly affected due to ASML, a major semiconductor stock, which was very weak last week. The Dutch market was one of the worst-performing indices in Europe.

In Asia, it was a similar story. Japan was very weak, down 6%, and Taiwan was struggling as well, with TSMC (another semiconductor stock) holding significant weight in that equity market.

So, you’ve got to start by contextualizing the market. Within the Philly SOX, there’s a range of semiconductor stocks, some listed in Holland, some in Taiwan, and the biggest one, NVIDIA, listed in the U.S. NVIDIA has been an obsession for market traders this year. It had a tremendous run until June, rising over 100% year-to-date in the first half of the year, but since then, it has declined significantly. As you can see from the chart, it’s down around 27% from its June highs, which on an annualized basis is over 100%, a very rapid rate of decline.

This shows how important it is to understand what matters in the market at any given time. NVIDIA has been this year’s obsession, but two years ago, it wasn’t relevant or part of the market narrative. This year, it’s critical. Our chart shows an overextended move in NVIDIA, giving a sell signal in June and showing when NVIDIA has been overextended over the last year or two. When a stock is overextended, it’s often at its most dangerous point, even when the narrative is positive.

In June, we saw that sell signal, and now, NVIDIA is starting to look overextended to the downside. We’ve just started generating a buy signal on this chart, something we’ll watch closely over the next week or two in our daily risk appetite gauge.

When you think about the market’s context as a whole, NVIDIA matters at the moment, as does the Philly SOX, where NVIDIA has the biggest weighting, along with AMD, TSMC in Taiwan, and ASML in Holland. This interconnectedness of the global stock market is important to keep in mind.

After last week’s brutal performance, the question is: How are we looking at this juncture, particularly from a one- to two-week swing trader time frame? We start by looking at our short-term market timing models, which are the first piece of the puzzle when looking at that one- to two-week time frame. Are the models mostly on buy, on sell, or somewhere in between?

Back in late August, we had a whole bunch of sell signals, and on August 23rd, we went short on the NASDAQ 100 futures. We were worried about tech and expected a wave three (see previous videos around that time). Secondly, all our short-term market timing models were on sell. Thirdly, we had bearish key reversals in key parts of the global tech stock market, including a NASDAQ 100 key day reversal on August 22nd, and similarly, in the Philly SOX, the third bearish key day reversal in a matter of months. All of this gave us the rationale to go short NASDAQ 100 futures.

Now, with models moving to buy, what’s the next step? This is what we address in our daily risk appetite gauge, published around 9:00 a.m. London time. We look across our short-term market timing models, such as the technical scoring system on the NASDAQ 100 and the Philly SOX, both of which are now back on buy, having been on sell a few weeks ago.

We also look at our risk appetite scoring system, which is like a fear and greed index. When it’s high, it shows that risk appetite is strong globally; when it’s low, it signals fear. We look at volatility, put-call ratios, and other models to build a comprehensive market outlook. With all this information, we recommend either going long or short on equity index futures, typically S&P 500 futures, occasionally NASDAQ, and sometimes other global futures.

If you’re interested in a free trial, click on the link below, and we’ll send you the daily risk appetite gauge for several weeks at no cost. If you’re subscribed, you’ll receive it in your inbox by 9:00 a.m. every business day.

In addition to price action and short-term market timing models, what else are we watching this week? There are several key events and macroeconomic data to follow. First, the ECB meeting on Thursday, where we’re expecting a rate cut, followed by a press conference with Christine Lagarde. Secondly, the U.S. presidential debate on Tuesday, which will be closely watched for its impact on the polls and how it influences market sentiment.

In terms of macro data, there’s a lot of focus on China’s total social financing, which is critical for growth, as well as U.S. inflation (CPI) data on Wednesday, which will be key for interest rate expectations ahead of the Fed’s meeting next week. Other important data include Michigan sentiment, NFIB small business surveys, and various UK reports.

That’s it for today’s Morning Market Hit for Monday, 9th of September. Thank you for listening. Please subscribe to our YouTube channel, share this video on social media, and follow us on LinkedIn, Twitter, and Facebook. Stay safe and trade well.

FIG 1: Asian Markets - Weekly Performance

1-Sep-10-2024-11-07-15-8396-AM FIG 2: US Markets - Weekly Performance