Nasdaq Rises After Nvidia Results

Much of this week’s focus was on Nvidia’s earnings and the results didn’t disappoint last night. Index futures rallied after an initial wobble. Attention now turns to the Fed Chair Kevin Warsh’s keynote speech at the Jackson Hole summit.

Nvidia tops estimates

Followed its results, Nvidia stock rallied on Thursday after the chipmaker’s latest results and upbeat revenue guidance reassured investors that demand for artificial intelligence infrastructure remains robust. The stock was up around 7% in pre-market trading, putting it on course to break a rather unhelpful recent pattern: Nvidia has fallen the day after reporting results in each of the past four quarters, despite consistently meeting or beating expectations.

The numbers themselves were strong. Adjusted earnings per share came in at $2.22, ahead of the $2.10 consensus estimate, while revenue reached $96.22bn against expectations of $92.17bn. The strength of the report also lifted the wider semiconductor complex, with chip stocks rallying in sympathy.

Will the Fed hike or hold in September?

The bigger question for markets, however, remains the Federal Reserve and whether it will hold interest rates steady at its September meeting.

US data released yesterday offered little clarity. Core PCE, the Fed’s preferred measure of underlying inflation, rose 0.2% month on month and 3.3% year on year, broadly in line with expectations. That suggests the disinflation process remains intact, but progress is proving frustratingly slow. Headline PCE was slightly firmer, also rising 0.2% on the month and reaching 3.7% year on year, prompting a modest hawkish adjustment in rate expectations.

For now, markets remain reasonably comfortable with the idea that the Fed will leave rates unchanged on 16 September, an outcome that should continue to provide a supportive backdrop for major US indices such as the Nasdaq 100 futures, which got a further lift by Nvidia’s results.

But there is still plenty of time for that conviction to be tested. The next three weeks will need to deliver a more convincing combination of economic data and guidance from Fed officials before investors can become truly confident about the September decision.

That makes tomorrow’s speech by Kevin Warsh at Jackson Hole particularly important. Even with Nvidia providing a fresh dose of enthusiasm for the AI trade, investors may be reluctant to add aggressively to equity exposure ahead of what could prove to be a pivotal message from the Fed chair.

In other words, Nvidia may have given markets something to celebrate today. But Jackson Hole could determine whether the party continues.

Nasdaq Technical analysis 

From a technical analysis point of view, the Nasdaq 100 future remains in an overall consolidation phase following the recent decline from around the psychologically important 30,000 area, where a bearish trendline has emerged.

The downside has been limited so far, with 29,250 an important area of support. That level has held, although not particularly convincingly. Still, the market is far from bearish, given that we remain comfortably above the 200-day moving average. Following Nvidia’s earnings results, the index has also broken back above the 21-day exponential moving average.

So, for now, I would describe this as a healthy-looking consolidation. However, if and when we see more convincing bearish price action suggesting that the market may have topped out, we could turn tactically bearish.

For now, buying the dips still makes sense within this consolidation zone, and we could yet see a breakout to new all-time highs in the months ahead. But it is important not to pre-empt the market and instead take things from one level to the next, particularly while we remain in summer trading conditions and financial markets are broadly in consolidation mode.

Should we break below the 29,250 support area in the coming days, that would be a technical bearish development, at least in the short term. In that case, we could see the index move down towards 28,200, which is the next important area of support.

We also have the 38.2% Fibonacci retracement around 27,900. That level has already been tested and held. Below it, we have the 200-day moving average and the recent range lows around the 27,000 area, which could become the next major downside target in the event of a significant sell-off.

On the upside, 30,000 remains the next important level to watch. A break above that would bring the most recent local high at around 30,343 into focus. A move above that level would be a bullish development, as it would invalidate the bearish trendline.

If that happens, then, in all likelihood, we could see the index push towards a new all-time high, above the summer high of around 30,975. That would clearly strengthen the bullish case.