Reversing a reversal pattern

The tech-sector’s end-of-month bounce on Wednesday was in no small part fueled by a dramatic rally in NVIDIA (NVDA) shares, which came one day after the AI chipmaker closed at its lowest level since May 22.

In fact, NVDA’s pivot—down 7% on Tuesday and up 11% on Wednesday—was the chipmaker’s biggest two-day reversal in more than four years. Thursday may have caught some traders off guard, though. After briefly trading higher on the day, NVDA fell more than 8% intraday:

The S&P 500 (SPX) and Nasdaq 100 (NDX) tech index also surrendered early gains and slid into negative territory for the day.

To get an idea of how unusual NVDA’s Tuesday-Wednesday move was, the stock has reversed a 7%-or-larger down day with an 11%-or-larger up day only six other times since 1999—far too small a sample from which to draw meaningful conclusions about what could happen this time around.

But NVDA has made similar moves that may provide potential insights about the stock’s current price dynamics. For example, NVDA has followed a 5%-or-larger down day with a 5%-or-larger up day 74 other times. While not quite the same magnitude as this week’s move, this nonetheless represents a significant two-day upside reversal. The stock closed lower the next day 58% of the time.

Also, if we look at just the 26 times these two-day pivots also coincided with NVDA closing at a 40-day (or longer) low, as it did on Wednesday, we see the stock was even less likely to close higher over the next five trading days:

The stock closed down more often than up on four of the five days, and the first day after the two-day reversal was the least likely to close higher. In other words, a trader apprised of this performance history may not have found yesterday’s decline so surprising.

However, what this chart doesn’t show is that after 10 trading days (two weeks), NVDA was higher in 20 of 26 cases (77% of the time). Whether the stock will mount a similar rebound remains to be seen, but its history provides a map that may help some traders put its recent volatility into better context.

Market Mover Update: Thursday’s stock market decline was in line with the early-month weakness August has often displayed over the past 34 years (see “August market patterns”). As sharp as yesterday’s tech sell-off was, though, small caps fell even more—reversing the trend that dominated last month (see “July rotation puts spin on 2024 market story”).

There’s more to the energy story than the fossil-fuels-vs.-renewables debate. Morgan Stanley & Co. sees nuclear power staging a significant rebound in the coming years (see “Nuclear power’s renaissance”).

Today’s numbers include (all times ET): Employment Report (8:30 a.m.), Factory Orders (10 a.m.).

Today’ earnings include: Chevron Corp (CVX), Exxon Mobil (XOM), United States Cellular (USM).

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¹ All figures reflect NVIDIA (NVDA) daily prices, 1999–2024. Supporting document available upon request.