The broader market is flashing warning shots. The NASDAQ sits 9% below its peak. The Dow Jones Industrial Average dropped hard yesterday and closed near the low of the day, which should have grabbed attention. The S&P 500 broke down below its 50-day moving average. I do not trust today's rebound and expect it to fizzle before the close, though a couple of hours remain. My stance is slightly bearish. I think more of this pullback is still coming.
Nvidia
I start wide, looking at industries and sectors, then drill down. Nvidia belongs to the Dow, which sold off, and Nvidia was part of that. The whole semiconductor group, chips and memory stocks, has been pulling back, and Nvidia is off its highs with them. The AI and infrastructure story is still alive, but two problems weigh on it. First, can Nvidia grow fast enough to justify its valuation? Second, its biggest customers are becoming its biggest rivals. Amazon is building its own Trainium chip. Google is spending to develop its own chip. When a few large customers make up a big share of your sales, even a small cut in their spending can hit revenue and earnings per share. Nvidia is not a bad company. I just think it stays capped for now.
The chart backs this up. Nvidia has traded sideways for about two months starting in June, roughly between 190 and 215. Resistance sits at 213, above the 50-day moving average, but it is also the level that has pushed price back three or four times in two months. A trader on the daily view could justify buying support near the 200-day moving average, around 190 to 195, which looks like long-range support. Short term, it is not trending up. Long term, it is. The stock needs to break out of this range before there is reason to believe in more upside.
On a 90-day chart of 4-hour bars, support at 190 is clear and resistance near 215 is obvious, matching the linear regression line of best fit. A bullish MACD cross is forming, but reaching 215 means a 20-point move, better than 10%, and the odds do not favor a hard rally through it. Price rallies could run out of steam at that level.
Going back to November last year, Nvidia pulled back after a big rally and traded sideways for about six months, not breaking out until April. So it could rise, but I think it stays trapped. As a trader, I ask how many ways I can be right, and more traders should think that way about their bank accounts. This trade wins if Nvidia goes up, sideways, or down. I buy the 230 out-of-the-money call for about $2 and sell the 220 call for about $3, taking in a $1 net credit. This is a bear call spread with 50 days on it. I do not see Nvidia breaking above 215 in the next 50 days, and even if it does there is a $5 cushion plus the $1 credit. If it just goes sideways and time runs out, I risk $10 to make $1, a 10% return in 50 days. The stock can go down, sideways, or even up and this trade still has a high chance of winning. Nvidia was up 2% at 193.87, with earnings due August 26th, inside the life of the trade.
Home Depot
Common sense says Home Depot needs three things: housing activity, homeowner confidence, and easy financing. All three are working against it right now. When homeowners cannot afford to move, they renovate. When they do move, they usually want to paint or fix up the house, which sends them to Home Depot. But if inflation has people strapped, they are not renovating, and if high interest rates keep them from moving, they stay put. Neither creates traffic for Home Depot. June existing home sales fell 2.4% from May, and pending home sales fell 5.4%. Both are heading the wrong way. The stock has been in a downtrend since December, trapped by the 200-day moving average. It ran back up to that line this past week, stalled, and fell away. I am bearish and think it has lower to go.
The chart agrees. From the September peak near 420, Home Depot has made lower highs, with a lower low in mid-year. An inverse head and shoulders could turn bullish above 360, but the downward-sloping 200-day is heavy overhead resistance. On three separate runs the stock rallied into the 200-day and failed, unable to close above it except for a single day. Bulls need to hold the 50-day near 330, which forms the right shoulder, with horizontal support around 320. The prevailing downtrend still rules, and no level of resistance has been broken yet.
On the 90-day 4-hour chart, the picture is more bearish. The downtrend line, which is basically the 200-day, marks the failures of the last four weeks. Price is now falling through the linear regression line of best fit. Support sits in the 320 zone, the same lows seen since mid-June. If 320 holds there can be upside. Below 320 it gets ugly.
Spreads are the right tool now because volatility is high. Stocks can reverse, then fail, and that jarring action can stop you out at your "I'm wrong" level before the move plays out. So I use another bear call spread. I buy the 370 call for about $2.50 and sell the 360 call for about $4.50, expiring August 21st, only 22 days out. That gives a $2 credit, so risking $10 to collect $2 is a potential 20% return with a strong risk-to-reward ratio in a short window. I chose that expiration because earnings land on the 18th, and the trade runs about three days past earnings. Even if earnings are good, I do not see the stock climbing past $360. The stock can move up 20 or 30 points on good earnings and the trade is still fine. If it goes sideways into earnings, time premium bleeds out, though extra time stays priced in ahead of the event. Once earnings pass, that air comes out and should expire as profit as long as the stock stays below 360. Three ways to win: up but not up 40 or 50 points, sideways, or down. If there is a big move up of 20 or 30 points I might close early, but I doubt it moves that way before earnings. A roughly 10% move would be needed to break the range, and the last post-earnings move was about 1%, so a breakout would be atypical for this name.
CSX
Some viewers ask for cheaper stocks than these $300 names, but CSX is reasonably priced and an S&P 500 stock. It tells us goods are still moving. Volume rose across the railroad, intermodal demand was strong, and profit outpaced revenue growth. Revenue was up 10%, earnings per share up 23%, operating income up 17%, and total volume up 6%. Good numbers. Railroads can lag, since people can stop shipping or cut volume, but right now the figures look healthy. Technically, CSX pulled back to the 10-day and just above the 20-day moving average and remains in an uptrend. The pullback offers a chance to get in below the highs at a reasonable price for a stock around $50.
The uptrend has been the story all along. CSX is up 37% year to date, pulling back to the 20-day near $50. Today's candle is weak, but it sits at support. Over the last six months the 50-day has been the key moving average. Price has closed below the 20-day two or three times but held the 50-day, which has not been broken since late March. That 50-day near $48, about 4% below current price, is the one to watch. This is an uptrending stock simply pulling back from its highs.
On the 90-day 4-hour chart, there is short-term weakness over the last few days. Price pushed into 51 and a quarter several times, matching the line of best fit. The 200-period moving average on this chart sits just under 49, consistent with the 50-day near 48. The MACD shows an aggressive sell-down, so a patient trader might wait for a bit more bleed toward $49, which could shift the MACD and give a crossover entry.
For CSX I want to own the stock, but not just pay $50 a share and sit. I sell a covered put, the September 18th 2026 52.50 strike, going for about $2.50 before the open, possibly a better credit now that the stock is down about 87 cents. At a $2.50 credit you are effectively buying it at $50 if the stock gets put to you, and it is trading about 13 cents below that. The stock gapped up over earnings and is now filling that gap. I want to see whether this level holds or it pulls back to the 50-day. Getting paid to buy lowers your entry price and controls your capital risk. If it breaks the 50-day and you no longer want it, you buy the option back cheaply, around $2.50 per contract, and take a small loss. That is a more controlled entry than laying out $50 a share into a stock I expect to keep rising. CSX was down about 1 and 3/4% at 49.86.
