Technical Tuesday: Nvidia erases over $500bn in market value. What's next?

Index concerns

Investors have been concerned about Nvidia’s outsized impact on the broader market for some time. Alone, it has accounted for around a third of the S&P 500’s increase in 2024, and if the correction continues, it will make it difficult for the index to keep rising. Yesterday clearly highlighted this outsized impact. Despite 9 of the 11 sectors in the S&P 500 finishing with gains, the index still fell 0.3% on the day. The tech heavy Nasdaq expectedly fell a larger 1.1%, but the contrast is much sharper when compared to the Dow Jones, which doesn’t include Nvidia, and actually added 0.7% on the day.

Analyst's outlook

Despite the pullback, Nvidia stock remains up a very healthy 140% year to date. The outlook remains positive - the Saxo platform shows that of the 60 analysts that cover the stock, 46 have a buy rating, 87 an overweight rating and 6 have a hold rating. The average target price of this group of analysts is 128.33, below the peak of last week but still 8.7% above yesterdays’ close.

The technical picture

From a technical point of view, the Nvidia chart has shown signs of fatigue with a bearish engulfing candle pattern appearing as highlighted in the chart below – these generally form after an extended move higher and indicate a change in sentiment to the downside, at least in the short term.

A further dent to sentiment comes from Nvidia insiders / employees, who have have been selling some of their holdings into the recent rally – in fact insiders sold more shares in the past month than ever before. Perhaps this isn’t so surprising given the size of the move higher, but nevertheless this is seen a bearish signal.

In terms of how much further the stock may go and key levels to watch going forward. Saxo’s technical analyst, Kim Larsson, noted the levels in blue below. The closest support sits at 115.82, around 2% below Monday’s close and these levels ladder all the way down to 95.14, below the gap which formed back in May, and some 18% below Monday’s close. You can watch his full analysis of the market with a focus on the semiconductor sector here.

Focus on inflation

Investors now anticipate Friday's US PCE inflation data, which will be an important data point for the outlook of the stock. Technology stocks are more sensitive to interest rates than other sectors. A higher than anticipated inflation reading would make near term rate cuts by the Federal Reserve less likely and put further pressure on Nvidia. On the flip side however, a lower than anticipated reading would likely be positive for the price.