To The Moon

Market has a mixed reaction on Monday (26 Aug) first day of highly anticipated earnings. S&P 500 and NASDAQ was down by -0.32% and -0.85% respectively. Russell 2000 also settled with losses by -0.04%. Only DJIA managed to close at a new record high at +0.16%.

S&P 500 and NASDAQ poor showing on Monday was led by a decline for chip stocks ahead of $NVIDIA Corp(NVDA)$ 's eagerly awaited earnings later in the week. Major indexes were coming off big gains on Friday, when Federal Reserve Chair Jerome Powell indicated during a highly anticipated speech that the central bank is poised to lower its benchmark interest rate soon.

Stocks have recovered from an early-month swoon as fears of a possible recession have subsided and expectations that the Fed will cut rates have grown. Despite losing ground on Monday, the S&P 500 remains less than 1% away from its all-time closing high.

The economic data and earnings calendars were light on Monday but pick up significantly in the next few days. The big event this week comes Wednesday, when Nvidia is scheduled to release its quarterly earnings report, amid expectations that the AI investor darling will once again report blockbuster results.

The mixed showing reflected some trepidation following last week's solid gains in reaction to Fed Chair Powell's dovish remarks. There was not much news to respond to, and investors are in vacation-mode ahead of Labor Day, contributing to the muted action.

Chip Stocks Decline Drag S&P 500 Information Technology Down

We saw 5 S&P 500 sectors ended in the green with smaller range of +0.31% to +1.11%. Information Technology lost -1.12% dragged by broader downturn for chip stocks. The consumer discretionary sector was the next worst performer, dropping 0.81%. Meanwhile, the energy sector showed relative strength, gaining 1.11% amid rising oil prices.

On Monday, Nvidia shares fell 2.3%, leading a broader downturn for chip stocks. The iShares Semiconductor ETF (SOXX) dropped 2.5%, with Arm Holdings (ARM), Broadcom (AVGO), Advanced Micro Devices (AMD) and other chips stocks all falling sharply.

Mega-cap tech stocks were mixed, with Microsoft (MSFT), Amazon (AMZN) and Meta Platforms (META) losing ground while Apple (AAPL) and Alphabet (GOOGL) rose slightly.

Note Yield Up Slightly

The yield on 10-year Treasurys, which fell on Friday following Powell's remarks, was seen to drop 4 basis point to 3.814%. The 2-year note yield was also down by 5 basis point to 3.939%.

Gold prices were up slightly at around $2,555, trading near record highs, while bitcoin dropped to near $63,000.

Economic Data Review and Upcoming

July Durable Goods - ex transportation: -0.2% (consensus 0.1%); Prior was revised to 0.1% from 0.5%

July Durable Orders: 9.9% (consensus 4.0%); Prior was revised to -6.9% from -6.6%

The above economic data show that business spending was soft in July, evidenced by a 0.1% decline in new orders for nondefense capital goods excluding aircraft.

We are expecting the June FHFA Housing Price Index at 9am ET where the previous was reported at 0.0%. We are also having the June S&P Case-Shiller Home Price Index where consensus at 6.0% was lower than previous 6.8%. At 10am ET, we will be looking at the August Consumer Confidence with consensus coming in at 100.0 where previous was at 100.3.

Stocks To Watch

Nvidia (NVDA) is set to release its Q2 earnings report this week, with significant attention from investors. Bank of America has suggested that investors may be underestimating the risk of a potential disappointment and recommends hedging through S&P 500 puts rather than Nvidia-specific options. Morgan Stanley highlighted strong demand for Nvidia's H200 chips, despite some delays in its upcoming Blackwell line of GPUs. The options market is implying a potential 9% upside for Nvidia's stock on its earnings day.

What we might be seeing if we looked at the technical, that Nvidia might make a move towards the upside if MACD continue the upside trend, and KDJ gave us a clearer upside signal from the J value.

But if we were to look at the performance of chip stocks last night, there might be some concerns over chip demand slowing down, from what we see from SMCI stock losing more than 8%.

$SentinelOne, Inc(S)$ is set to announce its Q2 earnings results on Tuesday, 27 August. The consensus EPS estimate is -$0.00, and the revenue estimate is $197.38M. The company has consistently beaten EPS estimates over the last two years and has seen mixed revisions for revenue estimates over the last three months.

The technical on Sentinel seem to suggest similar behavior from how Nvidia might move, so I would think that market might experience some sell off today (27 Aug) ahead of earnings as investors might seek to take profit and adopt a wait and see attitude before Nvidia earnings on Wednesday (28 Aug).

Technology was the weakest-performing sector, with stocks in the semiconductor industry posting significant losses ahead of Nvidia's (NVDA) earnings report on Wednesday. Shares of storage and server provider $SUPER MICRO COMPUTER INC(SMCI)$ posted the heaviest losses of any stock in the S&P 500, tumbling 8.3%. In its most recent quarterly report, released in early August, Supermicro missed earnings expectations as lower margins weighed on profits. The firm also announced a 10-for-1 stock split.

Chipmaker $Broadcom(AVGO)$ said it partnered with Hitachi Vantara, a data storage subsidiary of the Japanese conglomerate Hitachi, to collaborate on hybrid cloud solutions designed to help companies scale up AI-related processes. However, Broadcom shares could not escape the downward pressure in the chip industry, falling 4.1% on Monday.

If we were ro say that AVGO stock price was brought down by the downturn in the chip stocks, but from technical, KDJ is suggesting that AVGO is experiencing a potential downside, even though MACD could show some upside potential.

Summary

I would think that it is time to monitor these chip stocks as there might a good chance of catching a good potential price target, I am expecting chip stocks to continue to experience some downward trading, while it build up to NVDA earnings on Wednesday (28 Aug).

Appreciate if you could share your thoughts in the comment section whether you think chip stocks would continue to experience downward trend and pressure the S&P 500 and NASDAQ?

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.