Nvidia (NVDA) Retreat
Nvidia (NVDA) traded strong in pre-market, reaching around the 170 level, then turned negative and fell about 2.4%. Yesterday's bounce off the lows likely came from short covering rather than new buyers. Call-side options flow for NVDA ran at 14 times the average daily volume yesterday, which supports the short-covering read.
A pullback and retest of 160 followed by a move higher would be healthy. From the charts, NVDA needs to close above 165 today. That level is key. A failure there opens the door to the primary trend line of the last three years, sitting near $135. RSI is turning down and MACD is in a bearish setup.
News flow keeps pressuring the stock. Bloomberg reports it has seen documents showing chips went into China and a Shanghai data center. Lawyers are also reporting other items moving into China. This looks set to play out over time, and the end of it may not be near.
AMD (AMD) and the Rotation Trade
AMD (AMD) is down 8.3%. AMD had been the safe-haven rotation out of Nvidia (NVDA), a trade that worked for many traders and investors. Today they appear to be taking profits. It is a sharp reversal down, though not a losing week overall for AMD. Implied volatility stays high. The market may be de-risking into the weekend, since semiconductor news flow could stay volatile.
PPI and Inflation
PPI came in lower than expected, but core and headline both rose 0.3%, which points to pipeline pressure. What differs from past reports: most prior producer price inflation came from energy, but this time 60% of the increase excluded energy, and much of it came from food. Transportation and warehousing prices stay elevated as companies pass along higher energy costs they had already locked in.
The worry is services inflation ramping up next, which would feed into PCE. The market's initial move up made sense given the soft headline, likely an overreaction. Looking under the hood, you cannot dismiss it as all energy while readings sit above 5%. Volatile food prices can turn into services inflation over time as consumers push for higher wages, similar to the COVID-19 boom-bust inflation cycle.
PPI excluding food, energy, and trade rose 0.5%, worth watching. The open question is how long it takes for this to pass into CPI. For now, companies are absorbing some of the cost and passing some on. How long that lasts is unclear.
Key S&P 500 Levels
The 7650 level acted as resistance over the last couple of days, forming a double top. When PPI pushed futures up, the S&P equivalent sat right at 7650 again, making it closer to a triple top. The neckline is the 20-period moving average, shown in blue, which is being tested now. That line, at 7540, has been the low of the day. On a further break down, 7520 is the next level to watch. Recovering 7580 would set up a push higher.
Options positioning shows heavier bearish flows, which were already present before the PPI number. That raises the odds of more de-risking into the weekend, normal for the current environment.
