Market Milestones: Dude You're Getting a DELL

The markets continue to show weakness this week with the DIA leading the pack lower. Last Thursday’s bearish engulfing candle was a warning shot to the bulls, signaling that a correction was just around the corner. Big tech and the semiconductors are holding this market up but even they will have to retest at some point, won’t they? It would be different if NVDA sold ripped jeans and clothing to the youth of America like Abercrombie does. If that was the case, there would be no need for a retest. It would go up forever and land on the moon in the hippest and trendiest moon suits ever imagined. However, NVDA only sells GPUs that will power the entire future of artificial intelligence, so it must retest some before going higher.

Friday’s PCE inflation report for April will be critical for the markets. PCE is the Feds preferred inflation gauge, so it is more important than CPI in many ways. If the PCE data is in line or low, that will quash fears of rising inflation and the possibility of another rate hike. In fact, instead of all the talk we are hearing about possible rate hikes, it may resume the conjecture about when the first rate cut will happen. It also could allow stocks to resume their uptrend into all-time highs. However, if there is any kind of miss in the PCE resulting in a hot print, expect fear to commence and panic to ensue. 

The DIA moved 24.5% from October 2022 through July 2023 and it all started with a vertical move higher. If you take that measured move and start it at this Octobers vertical move, it puts the target for DIA around $400.00-$405.00 using a log chart. We have been watching for this measured move since December of 2023 and it came within $1.00 of hitting that target on Thursday May 16th. In the July 2023 correction the DIA retreat by 10%. If something similar happens, it would bring the DIA back to the daily 100 SMA or 200 SMA, which are 8% and 12% below their all-time highs, respectively. That is some pretty neat confluence if you are looking for an area with promising long potential on the DIA.

The size and scope of NVDA’s move are unprecedented; there is no doubt about it. Sure, you will see articles about stocks that have moved more in percentage terms, but none have added more market cap than NVDA. The biggest of the names moving like NVDA is none other than your bro's favorite computer, DELL, and NVDA is still 22 times larger. Dude, I hope you own DELL shares! Dell was up 138% in 2024 as of Wednesday. It reported earnings on Thursday after the bell and sold off sharply in the post-market falling 25% from Wednesday’s high. This was mostly due to lower guidance and contracting margins. Neither of which are good, especially when a stock is extending in a parabolic fashion. However, I will speculate that this could be a correction within the larger uptrend based purely on the technicals. How that fits into the fundamentals and lines up with the earnings reports remains to be seen.

We can see a massive gap on March 1, 2024, that is reminiscent of the NVDA gap on May 25, 2023. DELL did not consolidate nearly as long as NVDA after the gap before breaking out and going on a 50% bullish rampage. Usually, gaps and massive vertical moves like that are part of 3rd waves. That means that if DELL is in a 3rd wave, there should be a corrective 4th wave and then a 5th wave to new all-time highs in the future. As a rule, wave 4 generally retraces 23.6% - 38.2% of the 3rd wave. You can see that fib retracement drawn on the chart below. A 4th wave can go as low as the 50% retracement, but if that breaks, something is up, and you better channel your inner Count von Count and start from 1 again.

Thursday’s earnings gap already has DELL into the 23.6% retracement zone; however, it likely has some zigging and zagging before all is said and done, and the correction is over. Between $135.00, the 5/14 gap fill, and $110.00, the 100DSMA, are good spots to look for signs of a bullish resurgence. If DELL breaks below its March 2024 low, something is up, and it will likely pull back at least to $90.00.