CoreWeave and Nvidia Put AI Stocks Back in Play
The major U.S. stock indexes are showing mostly strong performances on Wednesday, led by a 2.35% gain in the Nasdaq 100. This is followed by the Nasdaq Composite with gains of 1.70%. The S&P 500 Index is higher by 1.12%, while the Dow Jones Industrial Average is trading flat-to-better.
Helping to generate today’s early strong returns is a surge in CoreWeave and a rebound in Nvidia after two days of heavy selling pressure.
Today’s positive performance indicates that investors may be shrugging off concerns about high inflation and a Fed interest rate hike jolt. U.S. stocks dropped on Tuesday after the latest consumer inflation data drove the chance of a Fed rate hike in December to 100%. The October CPI report showed a 0.4% month-over-month increase, above pre-report expectations. Hawkish comments from Fed Governor Christopher Waller also added to the selling pressure as investors priced in the possibility of a more than 25-basis-point rate hike.
Today’s price action suggests that investors may be more interested in scooping up some bargain-priced technology stocks after the Nasdaq dropped into correction territory last week with a more than 10% decline from its recent record high set on October 6. With oil prices collapsing the past week, investors may be betting that the worst is over for inflation. Yesterday’s hotter-than-expected CPI reading was helped by higher energy prices.
Investors may also be thinking that falling energy prices along with a 50-basis-point rate hike could do more to curb inflation and eliminate the need to keep raising rates over a longer period of time. This may eliminate some of the month-to-month uncertainty that could weigh on investor confidence.
CoreWeave is leading today’s rebound after its earnings report eased fears that spending on artificial intelligence had gone too far, too fast. The company raised its revenue outlook and offered investors more confidence that it can manage its debt. That was enough to bring buyers back into battered AI-related stocks.
Nvidia is also bouncing after two days of heavy selling. The stock was under pressure after the news involving CEO Jensen Huang, but today’s strength in CoreWeave is helping to take some of the heat off the AI leader. Investors appear willing to step in after the recent break, but they still have to prove they can sustain the buying.
The bounce in technology shares is helping to drive the major indexes higher, but the key question is whether this is fresh buying or another short-covering rally. The technical charts should help answer that question into the close.
Nasdaq Composite Faces Its First Test Above the 200-Day Moving Average
The Nasdaq Composite is sharply higher as we approach the mid-session on Wednesday after gapping over the 200-day moving average at 25122.92. This indicator is now support.
Despite the counter-trend rally, the main trend is still down, according to the daily swing chart. However, the chart indicates the index has room to run before encountering potential retracement zone resistance and the last main top.
A trade through 26048.83 will change the main trend to up. A move through 24262.14 will signal a resumption of the downtrend. The short-term range is 27722.75 to 24262.14, making its 50% to 61.8% area at 25992.45 to 26400.80 the primary upside target. This is followed by the 50-day moving average at 26397.18, which also forms a potential resistance cluster with the 61.8% level at 26400.80.
Can the Nasdaq-100 Hold the 200-Day Moving Average?
The December E-mini Nasdaq-100 Index is sharply higher as we near the mid-session. After successfully testing the long-term retracement zone at 27585.00 to 26633.50 and forming a new main bottom at 26366.50, the index is now testing the 200-day moving average at 28513.33, which is likely to determine whether the rally leads to a change in trend, or a test of the retracement zone at 28991.50 to 29611.00.
The main trend is down according to the daily swing chart, but momentum has been trending higher since Monday after traders confirmed Friday’s closing price reversal bottom at 26366.50. A trade through this level will signal a resumption of the downtrend, while taking out 28969.00 changes the main trend to up.
A change in trend doesn’t necessarily mean a breakout to the upside, however, because of potentially major resistance inside the retracement zone at 28991.50 to 29611.00. This is followed by the 50-day moving average at 29787.42. This indicator could be both resistance and a potential trigger point for an acceleration to the upside.
What to Watch
Nasdaq Composite Index (IXIC)
My outlook is bullish, provided the Nasdaq Composite Index stays above the 200-day moving average at 25122.92. If traders can continue to generate upside momentum, they may not encounter any meaningful resistance until the price cluster formed by the 50% level at 25992.45 and the last main top at 26048.83.
Failure to hold the 200-day moving average would weaken my outlook and signal that the rally may be losing momentum.
December E-mini Nasdaq-100 Index Futures
The main trend may be down, but the strong upside momentum is fueling my bullish bias. It will strengthen on a breakout above the 200-day moving average at 28513.33. Overtaking this indicator could lead to a quick test of the potential resistance cluster at 28969.00 to 28991.50. Buyers could encounter new selling pressure on the first test of this area. However, overtaking it with conviction could trigger an acceleration into 29611.00 to 29787.42.
A failure at the 200-day moving average won’t necessarily be bearish, but it could weaken my outlook because of a possible pullback into the long-term retracement zone at 27585.00 to 26633.50.
More Information in our Economic Calendar.