Tuesday created some cracks in the tech armor we haven't seen in a while. Most of my watchlist closed at or below where the stocks opened during the day, but the issue is many of those names surged higher intraday. What you're left with is an ugly candle.
These gravestone doji candles are bearish. While this is only one day, a gravestone doji works like a coin flip. About half the time the pattern will confirm bearish. After the recent run we've had in tech, all while pushing into debt ceiling troubles, I'm a bit more cautious than usual when seeing this type of candle.
I've been saying it for days now, and I'll continue to pound the table: have trailing stops on your positions in place. No need to call a top, but don't commit to riding this market lower if a reverse begins.
Remember, we have Nvidia (NVDA) reporting its fiscal first-quarter results after the bell today here on Wednesday.
After a strong four-day move last week, Nvidia shares have consolidated in a small flag as we head into trading, resting right along the 5-day exponential moving average (EMA). A move over $320 should spring another leg higher for bulls and push momentum traders into a chase.
If Nvidia disappoints or suffers a sell-the-news reaction, the biggest support level sits around $290, home of the 21-day EMA. It's also the top of the previous channel from the first two weeks of May before shares broke out higher. One could argue that $300 is a nice round number and close to the 10-day EMA, but we've had minimal trading at that level. I would consider $290 as the stop or line in the sand.
If $290 fails to hold, there is support at $280, the bottom of the trading channel before the recent breakout, and if that fails, traders should be prepared for $260.
I'm not going to game this one ahead of earnings. I'll be interested in a long-side scalp above $320 or a bounce off $290 if the earnings report and outlook are better than expected but the stock moves lower.
I'm hesitant even to discuss shorting until we see evidence the push in artificial intelligence is not translating into increased chip demand. While NVDA has enjoyed a tremendous run, there are so few AI names in the public markets that many fund managers will turn to NVDA just to say they have exposure in the AI sector. Nvidia can continue to win simply from a lack of choices. I expect that to change later this year and significantly in 2024, but for now, I need to respect the action.