Stock Market Rally Continues To Feel the Heat As Multiple Buy Signals Fail

Despite correcting almost 2.5% over the past 30 days, the S&P Index is still up 5.89% year-to-date, underlying the overall strength of the stock market rally experienced in 2024. Of late, the optimistic outlook has come under a lot of pressure, primarily driven by interest rate concerns.

Rahul Nambiampurath, analyst at Tradingbiz, highlights the persistently high inflation rate as a bearish environment for most growth stocks.

Rahul has handpicked other reasons that might explain the subdued performance of the broader stock and ETF market:

Valuation adjustments with investors booking profits

Sector rotation with the focus shifting toward defensive stocks

Geopolitical tensions

Key stocks like NVIDIA (NVDA) fell victim to these concerns, correcting 5% over the past 30 days. Broadcom (AVGO) and Super Micro Computer (SMCI), which flashed buy signals earlier this year, were correcting 3.75% and 4.06% over the past week and month, respectively.

WHY DOES NVIDIA STILL LOOK LIKE A STRONG PLAY?

For traders feeling disappointed by NVIDIA’s latest dip, Rahul has the following comment:

“This growth stock has given massive returns in 2024, almost 75% year-to-date. And it is bound to correct at some point. Yet, a strong position in the GPU and AI space makes it a favorable play in the mid-to-long term.”

The daily chart of NVIDIA suggests a chance of a deeper correction for this tech giant. Notice how it has broken the pennant pattern on the downside, driven by bearish divergence visible regarding the relative strength index or momentum.

If the RSI continues to weaken, dropping under 45, we can expect NVDA to dip closer to the $832 level. Post that, even a correction towards the $770 mark looks possible if the broader market breadth doesn’t improve.

Rahul believes new dips could and should bring in more buyers at NVIDIA’s counter.

Analysts still have mostly positive things to say about NVIDIA. The ones at Truist Financial have a price target of $1177 for this tech giant, led by the strides made in the AI and Parallel computing space.

WHAT COULD CAUSE THE DIP?

It is important to keep a close eye on the upcoming financial report of TSMC or Taiwan Semiconductor, one of NVIDIA’s key chip suppliers. Even though the company reported a rise of 16.5% in Q1 2024 revenue, the earnings are expected to be on the flatter side.

Rahul believes that a number below market expectations could lead to a sector-wide correction involving the likes of Apple and NVIDIA.

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