OVERVIEW
Not The Reaction We Were Hoping For

Nvidia has been experiencing remarkable growth recently, driven by soaring demand for its AI technology and chips. Their latest financial performance was exceptional, with revenue more than doubling from the previous year, which naturally sparked a lot of excitement and hype.

However, maintaining such rapid expansion is challenging. Despite Nvidia's results exceeding expectations, a slight slowdown in growth compared to previous periods led to some investor disappointment. The company couldn’t sustain the extraordinary growth rates of the past, which contributed to a drop in their stock price.

Additionally, Nvidia announced a $50 billion share buyback plan. This is significant because:

- Boosts Stock Value: Buying back shares reduces the number of shares available, which can increase the stock price as each remaining share represents a larger stake in the company.

- Signals Confidence: A large buyback suggests that management is confident in Nvidia's future and believes its stock is undervalued.

- Returns to Shareholders: It’s a way to return value to shareholders by using some of Nvidia’s profits to repurchase shares.

So, what does this mean for today’s market activity?

While it's good to have Nvidia earnings report out of the way, the initial reaction hasn’t been overwhelmingly positive. The stock fell by 7% after hours as it didn’t wow investors as much as previous reports. Despite this, Nvidia remains a top performer, and the current drop might reflect investor impatience rather than a fundamental issue with the company.

Looking at the broader market impact, if Nvidia continues to decline below key moving averages, it could drag down the Nasdaq and S&P 500, affecting the overall market. However, Nvidia has already recovered some of its losses in pre-market trading, so there’s a chance we could see a positive close today if this trend continues.

Let’s discuss the technicals now in more detail:

Nasdaq

Yesterday, the Nasdaq managed to stay above its daily 50-day Exponential Moving Average (EMA) as it anticipated Nvidia’s earnings report. The day’s trading action wasn’t very bullish, characterized by high-volume selling that suggests the index might test lower levels, potentially filling the gap down to the $465 demand zone.

In premarket trading today, the QQQ (which tracks the Nasdaq-100) is holding above its daily 20-day and 50-day EMAs. While this is a positive sign, it's hard to overlook the fact that the market has been in a retracement for six consecutive days. This kind of consolidation is normal after a significant rally, and it aligns with expectations from the past week but it is starting to get concerning.

However, it’s crucial for the QQQ to maintain its position above the 50-day EMA. If the demand doesn’t pick up and the index fails to stabilize, we could see a volatile drop of around 2% to fill the gap below.

S&P Midcap 400

The midcaps showed some resilience yesterday as they bounced off their point of control (POC) and the daily 10-day Exponential Moving Average (EMA). The session ended with a doji candle, indicating a period of indecision, but also highlighting that the MDY found strong support when it tested the $555 demand zone.

This performance is encouraging, and it’s likely we’ll see more sideways movement today. From a technical perspective, the key is for the midcaps to hold above the POC and the 10-day EMA. Maintaining this level of support will help sustain their positive momentum and lay the groundwork for potentially moving higher in the near future.

Russell 2000

The small caps are in a similar position, with demand stepping in to support the daily 10-day Exponential Moving Average (EMA) yesterday. Premarket activity shows that this bounce is still ongoing, with the IWM (Russell 2000 ETF) pushing above $218 and setting up to trend higher toward $222.

Ideally, we’d like to see the IWM test the point of control (POC) level at $223. Even if it doesn’t break above this level on the first attempt, what’s important is to see a sideways range develop, forming a daily bull flag. This type of consolidation would be a healthy sign, indicating a potential buildup for further gains. However, whether this consolidation will actually occur is still uncertain.

DAILY FOCUS
Something Doesn’t Feel Right

From a seasonal perspective, September is generally a weaker month for the market. This year is no exception, as evidenced by the mixed reaction to Nvidia’s earnings and the struggles of many stocks to break higher. We’re seeing some previous leaders, like Nvidia, pull back and fall below their 10-day Exponential Moving Averages (EMAs), making it challenging to be fully aggressive with investments right now.

However, there are still positive signs, such as Apple continuing to push higher, and many stocks in our portfolio are holding above their 10-day EMAs, which means there's no immediate need to sell.

Given the current market conditions, we're adopting a more defensive stance until we see a clearer opportunity to be more aggressive. Today and tomorrow will be crucial in assessing how the market will behave after Nvidia's report.

Ideally, we’d see some healthy sideways movement before a potential push higher next week. With the QQQ showing signs of breaking down and the MDY and IWM taking a pause and potentially needing more consolidation, it’s important not to be overly aggressive at this time.

Stock To Watch
Will Follow Through Come In?

AFRM: Affirm Holdings, Inc

• AFRM has just released its earnings report, and the results have been overwhelmingly positive. Given that AFRM is a financial stock, it tends to perform well during defensive periods in the market, so we’re keen to see how it will behave today.

• AFRM has been building a base for several months, with some distribution since late last year despite strong earnings reports. Today, we’ll focus on the 5-minute opening range highs and use this gap-up as an episodic pivot to consider entering a position.

• Our interest in AFRM, even while we’re taking a cautious approach with our overall investments, stems from its significant gap-up from a large base it’s formed over months and the favorable conditions in its sector.