AI continues to struggle for footing, but equities staged a solid intraday rebound yesterday. We went long at ES1!7,772.042 = 6613 but were stopped at breakeven. Equities found support at NQ1!31,006.005 = 24.4K, which I highlighted in yesterday's opening comment, and ES retraced from our 6690 level. Breadth improved despite SPX7,722.72 decline.
Overnight, Asia and EU equities are trying to stabilize after a rocky stretch, but sentiment remains fragile heading into NVDA234.97 earnings and the NFP print. The vol curve reflects how important these two catalysts are. ORCL is now trading below its level on 09/10 when the $300b OpenAI deal was announced, the FT noted that the $300b deal is already underwater, and ORCL CDS has climbed for weeks toward new highs since October 2022 — before the AI boom (see chart below). Fundamentals across major AI players continue to weaken, with more headlines about debt financing for capex and another round-tripping deal via NVDA/MSFT519.45 investing in Anthropic. Unlike earlier in the year, the muted reaction to the NVDA/MSFT/Anthropic news yesterday reinforces the late-cycle feel. That dynamic may be breaking as the market focuses more on AI revenue circularity.
The weight of the market is now on NVDA. NVDA is unarguably one of the most crowded longs, options imply a 6.5% move into earnings, and given how crowded the long is, it could easily swing 10%+ in my view. NVDA has solid support around 155 (about 15% below spot). I think NVDA will deliver a full-scale earnings beat, but the key question is whether that reignites the AI trade or becomes a sell-the-news event as the market uses liquidity to de-risk. In bear markets: good news is bad news, no news is bad news, bad news is bad news, and horrible news is good news — as reflected in MSFT and NVDA's poor performance yesterday. If NVDA spikes after hours and ends red on Thursday, it would most likely confirm the bubble is popping.
US futures are higher as the market waits for NVDA earnings after the bell, with NQ and RTY1!2,854.6 outperforming. Pre-market, NVDA is up 1.5% and is one of 6 Mag7 names trading higher, while AAPL333.00 is down 0.2%. Semis are also higher. GC is back to 4.1K, GC1!4,182.8 and SI1!61.986 have been leading equities for some time, signaling ST momentum.
The best scenario today is a rally into NVDA earnings, a clean beat and spike that wipes out bears from the past two weeks, followed by a reversal into the open tomorrow.