Home » The Magnificent 7 May Be In Serious Trouble

The Magnificent 7 May Be In Serious Trouble

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10/21/23

#Stocks – $NVDA, $TSLA

#Macro – $SPX, $NDX

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This will be one of those weeks with significant risks quietly lurching in the background. Again, the biggest of those risks are the Treasury auctions, which haven’t been going particularly well. This week will feature 2, 5, and 7-year auctions on Tuesday, Wednesday, and Thursday. They all will occur at the usual 1 PM ET, which comes in that quiet trading part of the day when volumes tend to thin out from the morning rush and before the end of the day. Treasury auctions have not been going well and have been seeing tails on the high yields versus the when-issued pricing, and indirect acceptances have been weak. So watch the high yield and indirect acceptance rates; those are the important figures to monitor.
Mag 7

Meanwhile, this is a big week for earnings, and it comes at a critical moment because the Bloomberg Magnificent 7 index is sitting on the neckline of a triple-top pattern, and if the neckline breaks, I don’t see any meaningful support till about 20% lower.  Which would be a tremendous hit to the overall NASDAQ 100 and S&P 500 as this group has been the biggest contributor to the gains.

Tesla (TSLA)

The technical test comes at a time when we will get earnings results from Microsoft, Alphabet, Meta, and Amazon. In my opinion, Tesla already reported last week, which was a disastrous report, and the stock has already sliced through meaningful levels of technical support after falling out of a symmetrical triangle.  The stock appears to be symbolic of the setup in the broader seven because the shares have fallen to the neckline of a double top, sit on support around the $212 to $214 zone, and have already broken the 200-day moving. If the stock gaps lower on Monday and support breaks, shares could start heading lower to around $180s

Nvidia (NVDA)

Meanwhile, the heart of the magnificent 7 comes down to Nvidia, as this has been the biggest driver, and you can see I have multiple bearish patterns drawn in this chart, from a bear flag to a rising broadening wedge to a potential head and shoulders and all comes apart should Nvidia fall below $400. That is the support level that appears to matter the most. What the market may be finally figuring out is that an AI GPU or chip, stack, or whatever it is you want to call it, is a product that other firms will surely make and will probably be subject to the same cyclic trends the sector has always been exposed too, which means at some point it becomes commoditized, and prices drop and margin shrink. Nvidia had a first-mover advantage, but eventually, that will fade, and the market has probably already realized it. I think that probably means the gap at $300 will eventually be filled over the next several months.

 

S&P 500 (SPY)

Overall, the S&P 500 continues to show signs of weakening, closing this week below the 200-day moving average and closing below the uptrend off the October 2022 low. The index is now just 1% away from falling below the bull market boundary around 4,190. This leg we are currently in could take the index to around 4,183, which would be a 1.618% extension of wave 1, resulting in the index challenging the 20% boundary, which I would imagine would be defended strongly by the bulls the first time around.

NASDAQ 100 (NDX)

Additionally, the NASDAQ 100 has been giving some clues more recently, as when it was bottoming and turning up and topping and turning down. These have been through diamond patterns, with their back-and-forth nature and sideway movement. The drop last week tells us that we would need to see sideways consolidation if the current patterns persist before we see a rally attempt. Additionally, each leg has been lower than the last, so it seems possible that this leg lower has some further to go first, perhaps to around 14,300.

Have a great week; I might not have the evening commentary back until Wednesday.

Until then, good luck

-Mike

Charts used with the permission of Bloomberg Finance L.P. This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.

 

 

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