It was a mixed day of trading, even though the S&P 500 finished essentially flat. Semiconductor stocks were hit hard, with the SMH falling nearly 3% at one point.
The SMH appears to be at risk as it tests support around $550, which looks to be the neckline of a potential head-and-shoulders pattern. The options market put wall for SMH sits near $520, while the next major technical support level is around $510. That makes the $510-$520 area the most likely downside target if the current pullback continues.
Nvidia (NVDA)’s announcement overnight that it is guaranteeing up to $250 billion for OpenAI’s data center expansion didn’t appear to be well received by the credit market. The company’s 5-year CDS spread widened again today, reaching 79.5 basis points. The stock also came under pressure, suggesting that, at least today, the widening in credit spreads is beginning to be reflected in the share price.
The same technical pattern seen in the SMH is also present in Micron (MU), with a similar neckline around $870. However, Micron’s options put wall sits much lower, around $800, roughly 10% below the current share price. That suggests Micron has significantly more downside potential if the neckline support fails.
The rest of this week is packed with potential market-moving events, including earnings from Microsoft (MSFT), Amazon (AMZN), Meta (META), and Apple (AAPL), as well as the FOMC and BOJ meetings and the release of the PCE inflation report.
On top of that, Treasury Tuesday brings $70.5 billion in T-bill settlements, followed by another $38.5 billion on Thursday. That combination of heavy Treasury settlements, major earnings, central bank meetings, and key economic data is likely to make for a challenging week for risk assets. With another wave of important economic data due in the first week of August and additional liquidity set to leave the financial system, next week may not prove much easier.
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