Here’s What’s Going to Move Stocks This Week

The Artificial Intelligence Fashion Show Continues this Week

Last week, we saw the unveiling of two new AI versions in what I am dubbing the beginning of “AI Fashion Week.”

OpenAI unveiled their lates version of ChatGPT-4o, while Google released their latest AI toy, Google I/O 2024, which provides a new generative search feature at the top of your Google searches.

The rollout of AI programs and apps will continue this week with Microsoft rolling out their vision for AI PCs at the company’s developers conference on Monday.

Microsoft’s move to start focusing the market on what they will be doing with AI PCs is seen as a bolder move given that it allows the company to show users how AI will find its way into the hardware they are using, thus a potentially easier way to monetize the users AI experience.

AI fashion week will then conclude with earnings from chip giant Nvidia (NVDA).

Nvidia’s Earnings: What to Expect

Nvidia is the most crowded stock on Wall Street.

That title bestows a lot of pressure on its earnings report every quarter. An earnings beat will earn the stock another 10-20% rally within the first few days of trading after the report. A miss… we don’t want to think about earnings missing here.

Here’s why.

Nvidia now represents the entire AI movement. A trip or misstep on the company’s part would send the entire AI universe of stocks into a “revaluation mode” as their chips serve at the top of the AI food chain.

A miss would quickly draw an irrational selling response from traders and investors alike. The downside potential should go well beyond the stock’s upside potential ahead of the earnings call.  In other words, Nvidia’s risk/reward ratio is skewed to excessive risk as we head into the report.

If you own the stock, you likely don’t want to sell but should consider where you might sell if the report goes wrong.

If you don’t own the stock just do this simple thing… wait.

You’ve already waited and missed out on a rather unimpressive quarter from Nvidia, at least compared to other quarters. Believe me, the opportunity to buy the dip after a disappointing earnings report will not be lost on the market. We’ll see support after an initial sharp decline.

Here’s What the Bulls Want to Hear from Nvidia on Wednesday

Another beat on earnings per share (EPS). Expectations are for $5.59. Last quarter the company earned $5.16.

Revenue growth of 265% or higher. We want to see similar positive earnings growth continue as the company sees increased demand for their GPUs drive the financials.

Another positive outlook for next quarter. This may be the most important part of the report.  Investors will need to see management forecasting stronger numbers for next quarter. This is what the market has grown accustomed to.

nvda stock chart

Remember last month when Super Micro Computer (SMCI) failed to provide a preview of their upcoming earnings results? The stock dropped 20%.

That’s because investors had grown to “expect” that preview. Investors “expect” the positive forward guidance from Nvidia’s management every quarter. Failure to deliver will instantly strip significant value from Nvidia shares.

Stocks are Climbing the “Wall of Worry” Again

Investor sentiment is once again driving stock prices higher.

Two months ago, I warned you that investors had become too greedy. The proof came from readings of the CNN Fear and Greed Index.

The index measures the activity of seven different market indicators to gauge whether fear or greed is driving stock prices.  Fear drives prices lower and greed higher, until you get to the most extreme of either of those “moods.”

cnn fear and greed index

Last week, we saw the market sentiment cross from “fear” into “greed,” which means that investors are now looking to put money back to work in the stock market for bigger gains.

The technical match this shift in sentiment as we’re seeing bullish activity in the major indices.

  • The S&P 500 and Nasdaq 100 crossed above their 50-day moving average. That’s bullish.
  • Both indices are seeing an increase in positive momentum. That’s bullish.
  • The Russell 2000 Index is preparing to break into new 52-week highs.
  • Bitcoin back above its 50-day moving average and rallying towards $70,000.

The Fear and Greed Index looks to give us another two to three weeks of continued support until we need to worry about the readings becoming excessively high as stocks form a top.

The QQQ is one of the best ways to benefit from exposure to the market during this time. Investors are still squeezing into these stocks as we continue to see more and more AI headlines drive buying activity.

qqq stock chart

The MEME Craze Appears Over…

It appears that the MEME stock craze has come to a much fast end this time around.

Shares of GameStop (GME) – the original of the MEME stocks – have settled back in to prices around $20 after posting highs around $65 last week.

If you missed it, GameStop’s management delivered news that they were pricing another offering of the stock to raise capital for the company. At the same time, they announced a disappointing revenue forecast, ahead of their June 5 earnings report.

I like to think that all of you reading this are smart enough to know that this was nothing more than a very simple “pump and dump” triggered by the almighty emotion, greed.

gme stock chart

What All this Means for Stocks…

You’re going to continue to see stocks moving higher this week, more notably AI-related names like Microsoft (MSFT) and Alphabet (GOOGL). Hardware-related names like Super Micro Computer, Dell and others have a positive bias, but will serve at the results of Nvidia on Wednesday.

Broader sectors such as the banks, utilities and technology stocks will continue higher while consumer related stocks like retail, and real estate will continue to show signs of weakness.

Here’s the Earnings Report I’m Watching the Closest This Week

Besides Nvidia…

Lowes

Home Depot (HD) didn’t do Lowes (LOW) any favors last week as the home improvement giant set disclosed that they are expecting a slowdown revenue from contractor and do-it-yourself items.  The is just another sign that consumers like you and I are wearing thin on spending as a result of prolonged inflation.

Lowes will report earnings results on Tuesday morning. The stock just shifted into a an intermediate-term bearish trend with Lowes’ stock’s 50-day moving average now trending lower.

lowes stock chart

Target

Reporting on Wednesday morning, Target (TGT) shares are also in the crosshairs of sellers as the tock’s 50-day moving average is trending lower. The company is expected to see pressure on their earnings from Walmart (WMT)’s success in luring the middle- and upper-middle class retailer into their stores as they fight inflation.

Target stock has been trending in a range around $160 with a high likelihood of breaking lower to $150.

tgt stock chart

 

 

 

 

 

About the Author

Chris Johnson (“CJ”), a seasoned equity and options analyst with nearly 30 years of experience, is celebrated for his quantitative expertise in quantifying investors’ sentiment to navigate Wall Street with a deeply rooted technical and contrarian trading style.

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