This will be one of those weeks with significant risks quietly lurking in the background. Again, the biggest of those risks are the Treasury auctions, which haven’t been going particularly well. This week will feature 2-, 5-, and 7-year auctions on Tuesday, Wednesday, and Thursday. They all will occur at the usual 1 PM ET, which comes in that quiet trading part of the day when volumes tend to thin out from the morning rush and before the end of the day. 

Treasury auctions have not been going well and have been seeing tails on the high yields versus the when-issued pricing, and indirect acceptances have been weak. So, watch the high yield and indirect acceptance rates; those are the important figures to monitor.

Magnificent 7

Meanwhile, this is a big week for earnings, and it comes at a critical moment because the Bloomberg Magnificent 7 index is sitting on the neckline of a triple-top pattern. And if the neckline breaks, I don’t see any meaningful support until about 20% lower. Which would be a tremendous hit to the overall Nasdaq 100 and S&P 500, as this group has been the biggest contributor to the gains.

Tesla (TSLA)

The technical test comes at a time when we will get earnings results from Microsoft, Alphabet, Meta, and Amazon. Tesla already reported last week, which was a disastrous report, in my opinion, and the stock has already sliced through meaningful levels of technical support after falling out of a symmetrical triangle. 

The stock appears to be symbolic of the setup in the broader seven because the shares have fallen to the neckline of a double top, have rested on support around the $212 to $214 zone, and have already broken the 200-day moving average. If the stock gaps lower on Monday and support breaks, shares could start heading lower to around the $180 range.

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Nvidia (NVDA)

Meanwhile, the heart of the magnificent 7 comes down to Nvidia, as this has been the biggest driver. You can see I have multiple bearish patterns drawn in this chart, from a bear flag to a rising broadening wedge to a potential head-and-shoulders, and all would come apart should Nvidia fall below $400. That is the support level that appears to matter the most. 

What the market may be finally figuring out is that an AI GPU or chip, stack, or whatever it is you want to call it, is a product that other firms will surely make and will probably be subject to the same cyclic trends the sector has always been exposed to, which means at some point it becomes commoditized, prices drop, and margins shrink.

Nvidia had a first-mover advantage, but eventually, that will fade, and the market has probably already realized it. I think that probably means the gap at $300 will eventually be filled over the next several months.

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S&P 500 (SPY)

Overall, the S&P 500 continues to show signs of weakening, closing this week below the 200-day moving average and closing below the uptrend off the October 2022 low. The index is now just 1% away from falling below the bull market boundary around 4,190.

This leg we are currently in could take the index to around 4,183, which would be a 1.618% extension of wave 1, resulting in the index challenging the 20% boundary, which I would imagine would be defended strongly by the bulls the first time around.

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Nasdaq 100 (NDX)

Additionally, the Nasdaq 100 has been providing some clues recently, when it was bottoming and turning up and topping and turning down. These have been through diamond patterns, demonstrated by their back-and-forth nature and sideways movement. 

The drop last week tells us that we would need to see sideways consolidation if the current patterns persist before we see a rally attempt. Additionally, each leg has been lower than the last, so it seems possible that this leg lower has further to go first, perhaps to around 14,300.

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Please take note that I might not have the evening commentary back until Wednesday.

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