The retest is upon us, and it started with a bang. Thursday brought us a bearish engulfing reversal candle at a key resistance. The SPY filled its overhead gap from July 17th, 2024, on Wednesday, gapped up on Thursday, and then sold off all day long. Everything was overextended and ran into strong resistance levels.

We have been emphasizing the importance of “trimming, trailing, and protecting your gains” all week long in our daily RLT Newsletters because we anticipated that a pullback was imminent. On Thursday, MSFT and AMZN were rejected by their 100DSMA, while AMD rejected off both the 100DSMA and 200DSMA. Additionally, META and LLY wicked into an all-time high before selling off, along with many other key reversal candles, signaling that volatility may be back.

The SPY chart below maps out the two bullish paths we have been and are currently watching. If the SPY pullback is shallow, it may run out of steam a little earlier, possibly stopping at the lower trend line before volatility returns. However, if the SPY can pull back into the 100DSMA, bounce, and head higher, it could have enough momentum to return to the upper trend zones and the 150% Fibonacci extension of the recent sell-off.

SPY

The size of this retest is going to depend on two factors: Fed rate cuts and NVDA earnings. Realistically, these have been two main drivers of the market for the last 15 months, so why should that change now? The Fed will announce the size of their rate cut in mid-September, as a cut is basically guaranteed at this point. However, the President of Money and Czar of the Economy, Jerome Powell, is speaking at Jackson Hole this morning and will likely provide key insights into how this managed economy is about to get managed.

If the Fed cuts by 50 basis points instead of 25, it will show they finally agree with the bond market and now believe they have held rates too high for too long. The charts for oil, bonds, gold, the dollar, and the IMW are all signaling that a recession is on the horizon. The only times in the last 20 years that they have cut by more than 25 basis points in one meeting were during the 2007 and 2020 crashes. The eerie similarities between this market and the market in 2007 will continue to mount if they drop by 50 basis points.

Crude Oil

The other event that could either accelerate a market decline or kick the rocket boosters into overdrive, is scheduled for next Wednesday after market close and is of course NVDA earnings. NVDA has been key to this market since their blow out earnings report on May 24th, 2023. The most recent earnings report on NVDA was another absolute banger, sending the stock soaring 48% higher in the subsequent 19 trading days. Needless to say, expectations for the stock are sky-high. NVDA is expected to post quarterly earnings of $0.63 per share, a 133% year-over-year change. Revenue for this quarter is also projected to be $28.24 billion, up 109% from last year. A miss on these numbers will surely send NVDA lower, especially if it holds the current price levels into earnings.

However, if NVDA pulls back another 7%-10% from Thursday’s close, a good earnings report could provide the thrust needed to propel it to new highs. . If NVDA delivers another monster earnings report, as it has been known to do, this will reignite excitement in A.I. names and should ignite a bullish rally to new all-time highs. If NVDA hits $162.75 it will be the world’s first 4 trillion-dollar company. I have this crazy little theory that if NVDA hits that milestone this year, it will mark the top of the market for the next 6-9 months. That kind of statement is just like the people calling for IWM to go to $300.00 before year end. It’s ludicrous and never going to happen, but if it does, we can point to it for the next 47 years of our life and tell you how smart we are that our inane guesses turned out to be prophetic. Also, my nonsense is better than their nonsense.

NVDA