Stocks Tumble As Technology Sector Is Battered

Stocks were sharply lower today following headlines about Iran launching missile strikes against Israel. This, unsurprisingly, pushed up implied volatility and oil prices, triggering a flight-to-safety trade.

However, a deeper look suggests there was more to today’s market moves than just escalating tensions in the Middle East. Even before the market opened, negative headlines about Apple reducing iPhone 16 production by 3 million units were reported. As a result, Apple’s stock was down about 1.7% pre-market, even before the Middle East news hit the wires.

I’ve owned Apple stock for years, and I think the iPhone 16 Pro Max is just okay. It doesn’t feel like much improvement over the iPhone 14 Pro Max I had before. I’m disappointed that I haven’t seen much of the promised Apple Intelligence features, aside from a new camera button. I get that will come later, but there is no real reason to rush to upgrade at this point. The switch to USB-C is also frustrating, as I need all new chargers.

That said, headlines about supply cuts are nothing new—they seem to happen with nearly every cycle. The stock should be fine if it stays above $225. If it falls below that, things get interesting, with room to test $214.

Regarding Nvidia, there are reports that Huawei, a Chinese chip company, is developing its own AI chips, with Chinese companies seeking cheaper alternatives to Nvidia. Meanwhile, Cerebras filed for an IPO today, aiming to be listed on the NASDAQ and competing with Nvidia for business.

This implies that Nvidia’s margins may come under pressure moving forward as competition ramps up and the landscape becomes more competitive. It seemed like it was only a matter of time before this would happen.

Gross Margin estimates for fiscal 2025 have already started to fall, but if these headlines prove accurate, they may have to fall further. With increasing competition, Nvidia could face more pressure on profitability moving forward.

Today’s price in the stock action formed a bearish engulfing pattern. However, the stock still has some room before reaching the caution zone, which sits near the lower trendline around $111.

Interestingly, the NASDAQ fell below the blue uptrend line that has been forming since October 2023. Perhaps more importantly, we’re now seeing the development of a rising wedge on the NASDAQ 100, which might be part of a bear pennant. I’m not entirely sure, as the wedge seems disproportionate to the flagpole.

However, this could be a key factor to watch because if it is indeed a bear pennant, it may signal a target for the NASDAQ around 15,960, which aligns with the July 2023 highs.

A similar setup is unfolding in the S&P 500 as it tests the trendline from October 2023 and forms a rising wedge pattern. What’s crucial for the S&P 500 is the 5,700 level, which represents the zero gamma level. This level distinguishes positive gamma from negative gamma.

Negative gamma means increased volatility, with market makers turning into sellers during a downtrend. That explains why the index bounced twice off that level today.

The SMH semiconductor ETF shares many similarities with the NASDAQ and looks much more like a bear pennant than the S&P 500 or NASDAQ 100. Additionally, there are signs of a head and shoulders pattern, further suggesting a potential return to November 2023 levels. This combination of patterns strengthens the bearish outlook for SMH in the near term.

-Mike

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