TRADE OF THE WEEK - NVDA

May Newsletter Performance

May 14-May 27 

These are from the following day’s market opening price after the newsletter was sent. Movements represent max possible movement based on guidance/technical analysis given in the newsletter.

Major Highlights from the Global Markets 

Highlights of US Markets

• The US indices ended mixed for the last week, with Nasdaq Composite (IXIC) rising 2.51% for the week. On the other hand, Nasdaq 100 rose 3.59% while Dow Jones declined -1.00% and S&P 500 rose 0.32% for the week.

• An “agreement in principle” was reached between Joe Biden and House Speaker Kevin McCarthy late Saturday to raise the debt ceiling limit. However, the legislative package would need both parties’ support to win congressional approval next week before the deadline of June 5th.

• The dollar index rose 1% against a basket of currencies for the week to close at 104.226.

European Markets Highlights

• The Europe stock markets fell on signs of economic worsening, with pan-European STOXX 600 declining 1.59% for the week, while Germany’s DAX and France’s CAC 40 declined 1.79% and 2.31%, respectively.

• The UK’s robust core inflation data led to a sell-off in bond markets, with the benchmark 10-year UK Government bond yield heading toward 4.37%, while the benchmark 10-year German Government bond yield closed above 2.5%.

• Europe’s largest economy, Germany, entered into a recession, with GDP contracting 0.3% for the first three months through March, while its economic contraction was 0.5% in the final three months of the last year.

• The UK’s CPI rose 8.7% in the last 12 months to April, down from 10.1% in March.

• IMF now forecasts UK’s economy to grow at 0.4% in 2023, in contrast to its last month’s forecast of contraction by 0.3%.
  

  Asian Markets Highlights

• Japanese manufacturing activity expanded in May for the first time in seven months, with the services sector also reporting robust growth. This helped Nikkei 225 index to touch a 33-year high early in the week and finally close just below the 31,000 mark at 30,916.24. On the other hand, its TOPIX index declined 0.73% for the week.

• The Hawkish Fed comments last week leading to speculation that U.S. rates are going to remain higher with divergent plans from Governor Kazuo Ueda of Bank of Japan reconfirming the central bank’s ultraloose monetary policy until inflation hits the 2% target saw Japanese currency closing 1.96% higher at 140.660.

• China’s market ended lower, with the Shanghai Stock Exchange Composite Index declining 2.16%, whereas the blue-chip index CSI 300 declined 2.37% for the week on concerns of economic recovery losing momentum. Hong Kong’s Hang Seng fell by 3.62% for the week.

• The World’s largest car exporter title shifts from Japan to China, with China reporting to have exported 1.07 million vehicles in the Q1 of this year, an increase of 58% compared to the same period of last year.

  Major News/ Catalyst Events that were Market Movers

  • The inflation indexes continue to remain persistently high. The core personal consumption expenditures price index (PCE) rose by 0.4%, above expectations in April and rose 4.7% YoY, indicating no significant progress in bringing down inflation. In addition, the Commerce Department reported that personal spending rose 0.8% in April, double the consensus estimates supported by increased spending on goods and services.

  • The single event that caught everyone’s attention during the week was the 24% jump in Nvidia Shares on Thursday after the company beat the Q1 earnings estimates by a wide margin and became the world's sixth most-valued public company with a market cap of $963 billion.

  • Stocks like Broadcom Inc. (AVGO) and Arista Networks, Inc. (ANET) saw a significant rise of 19.12% and 18.37% for the week.

     

  Bond Market Changes

• The U.S. 10-Year Treasury yield closed at 3.795% for the week, while the U.S. 2-Year Treasury yield closed at 4.568%.

  Commodity Market Changes

• Gold closed the week at $1,945.74 per ounce, and silver closed the week at $23.316 per ounce, rising 2.56% on Friday.

• The Crude Oil WTI Futures - Jul 23 (CLN3) closed the week at $72.87.

Technical Analysis of Major Indices

Dow Jones Industrial Average (DJI)

The Dow Jones index rose 1% to close at 33,093.35. The index managed to pull back from its lower trendline around 32,580. After the first hour session on Friday, the index has been consolidating in the range of 33,000-33,150, and if it manages to trade within the same range and breakout of it, then it could be heading towards its upper trendline resistance around 33,250 and more, if it breaks above the downward channel.

NASDAQ 100 (NDX)

The index rose 2.58% on Friday to close at 14,298.41. The hourly RSI at 74 indicates strong bullish momentum, and a pullback towards 14,150 can be a good buying opportunity. If the index consolidates near the top and then breaks out, then it could head towards 114,650 and 14,800 in the coming days.

S&P 500 (SPX)

The index rose 1.30% on Friday to close marginally above the 4,200 mark. The index has broken out of its symmetrical triangle and has been trading near its resistance. However, the hourly RSI above 66 indicates bulls are gaining momentum, and a price breakout above 4,200 can make the index head towards its next targets at 4,236.30, 4,282 and 4,311.69 which could take place on or before June 22rd-26th.

FTSE 100 Index (UK100)

The index broke below the narrow range of 7,700-7,800 to touch a low of 7,555 on Friday, which coincided with the.50 retracement ratio of the prior uptrend ( 7,200-7,935) and managed to close at 7,634.30. The daily RSI below 40 and the hourly RSI above 60 indicate indecisiveness at present. A break below 7,550 or above 7,700 will signal an upcoming trend. Otherwise, consolidation can continue until this symmetrical triangle is broken in either direction.

Technical/Fundamental Analysis of Large Cap Stocks

Nike, Inc. (NKE)

Nike shares have plunged more than 15% this month, much influenced by the dismal earnings report of Foot Locker (FL), which has fallen around 36% in the last two weeks. In addition, Williams Trading analysts downgraded Nike to sell, anticipating margin pressures which are not expected to recover until the second half of fiscal 2024.

Technicals, too, do not reveal a good picture of the stock. The share formed a double top around the $128-$130 mark, which coincides with the 50% retracement ratio of the prior downtrend. The stock has broken the neckline support around $115.50 and is presently trading at $107.51 with its daily RSI below 25. As per the double-top pattern, the near-term target appears to be $103, with the next target at $100.97, a .618 golden retracement ratio of it’s preceding uptrend from ($82.40-$131.00).

If Foot Locker can beat the estimates, we could see a push back towards the dead cat bounce at $112.56 and the Daily 200 MA (at $112.75).

Stryker Corporation(SYK)

The company business has been facing a foreign currency rate fluctuation threat, and in the Q1 quarter, the unfavorable impact due to foreign currency on sales was 2.2%. The trend is likely to continue in the first half of the fiscal year 2023.

The stock has broken its trendline after touching a high of around $307. Moreover, it has also broken its fibonacci support at $278.78, and its daily RSI at 31.07 indicates the stock is heading for a correction. Presently, it has been trading at $272.58 and below its Daily 50MA and the Daily 200MA at $248.70. The share price can see a pullback of its prior uptrend to its Fibonacci retracement ratio of .382 at $261.59 and the .50 ratio at $247.70 if it fails to hold $273.66 daily.

Last Week and Upcoming Geopolitical Events

• 19-23 May 2023- G7 Leaders' Summit.

• 24 May 2023-Quadrilateral Dialogue (Quad) Leaders’ Summit.

• 25 May 2023-Third anniversary of the killing of George Floyd.

• 28 May 2023-Local and regional elections in Spain.

• 2-3 June 2023- Foreign ministers of BRICS meeting.

• 2-4 June 2023-Shangri-La Dialogue.

• 4 June 2023-35th ministerial meeting of OPEC.

  Upcoming Economic Calendar for the Week

  • Tuesday, May 30- House Price Index MoM and YoY and Dallas Fed Manufacturing Index.

  • Wednesday, May 31- MBA Purchase Index, Fed Bowman Speech, and Fed Beige Book.

  • Thursday, June 1- ADP Employment Change, Initial Jobless Claims, S&P Global Manufacturing PMI Final, and Fed Harker Speech.

  • Friday, June 2-Unemployment Rate, Average Hourly Earnings MoM and YoY, and Total Vehicle Sales.

Companies Reporting Earnings for the Remaining Week

HP Inc. (HPQ)

The company is set to announce its Q2 earnings on Tuesday, May 30, after the closing bell. The consensus EPS and revenue estimates stand at $0.76 and $13.05 billion, respectively, with revenue down by 20.7% YoY and EPS down by 29.6% YoY.

The stock has formed an ascending triangle on the daily timeframe chart with its RSI above 60. Moreover, there is a golden crossover with the 50-DMA crossing over its 200-DMA. Hence, the price sustaining above $31.50 can see the stock moving towards its retracement ratio targets of .50 and.618 at 32.80 and 34.85, respectively.

Hewlett Packard Enterprise Company (HPE)

The company is set to report its Q2 earnings for the fiscal year 2023 on May 30 after market close. The revenue estimates stand at $7.31 billion, down sequentially by 6.4% but 6.9% higher YoY. The adjusted EPS forecasts stand at $0.48, down sequentially by 23.2% but 9.1% higher YoY. The stock trades at 6.84 forward P/E.

The stock retraced to its golden ratio of .618 of its prior uptrend and formed a double bottom around $13.70. The stock managed to close above its 50 and 200 DMA rising 4.57% in Friday’s session. The daily RSI at 63.80 exhibits bulls taking over, and the next targets could be $16.00 and $16.33.

Forex Analysis

U.S. Dollar Currency Index (DXY)

The index has risen around 2.87% in the past three weeks after forming a double bottom. The next resistance is at 105.105, which is the high of March 15th. Above that, the index can test the level of 105.650 and even the YTD high around 105.880. The daily RSI at 68.34 indicates strong bullish momentum.

EURUSD

EUR/USD currency pair has been weighed down by the stronger PCE inflation data and hawkish comments from Fed’s Mester boosting the dollar. It has formed a double top around 1.11070 and has been trading at 1.07224 below its 50 DMA, and the neckline support at 1.06994. The daily RSI below 34 indicates bearishness, and it could be heading toward its next support at 1.004998.

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