Shaky ground for US equities

Major US stock market indexes uniformly corrected lower yesterday, yet the upward momentum seems to remain for the time being. In today’s report we intend to focus on Tesla (TSLA) and NVIDIA (NVDA) but also discuss the recent earnings releases of major US banks and conclude the fundamentals with the expected earnings report releases in the coming week. The report is to be concluded with a technical analysis of Nasdaq’s daily chart.   

Tesla’s bearish tendencies

Tesla’s share price tumbled on Friday and opened with a negative gap on Monday stabilising at lower grounds. Market worries  rotate around the possibility that the drop may be only the start of a wider drop for the share’s price. Fundamentals tended to weigh on Tesla’s share price for a while now, with a number of analysts highlighting how the share price may be overpriced. The popularity, size and instability of the company highlighted how both the stakes and uncertainty are high, making the company possibly, a prime target. It’s characteristic that analysts are quoted stating that the company value would be around $200 Billion, a far cry from the company’s current market cap of around $680B, even after the today’s drop. The accident fire in France claiming four lives and mostly Tesla’s disappointing robotaxi event on Friday caused the share price to tumble on a fundamental level. Also some worries emerged from Telsa moving Bitcoins worth $760 million, practically emptying its public crypto wallet. On the other hand, an encouraging element for the company, could be that Tesla managed to reach a production level of 3 million cars in Shanghai, yet that falls short to cover for the market worries surrounding the company. Looking ahead, we note the expected release of Tesla’s earnings report next Wednesday. Forecasts for the revenue figure are set for a slight drop while Earnings per Share (EPS) to rise. We tend to maintain some doubts about the revenue figure as it may come in lower than expected which in turn may weigh on the share’s price.   

NVIDIA’s troubles

Fundamentally dark clouds seem to be gathering over NVIDIA. We make a start by noting the drop of NVIDIA’s share price yesterday. The drop was caused by the leaking of ASML’s earnings report. The company is considered as key  in the sector on a global level. In the report, the company lowered its revenue outlook, in a negative signal for the sector and thus tended to weigh on NVIDIA’s share price as well. Furthermore, the Biden administration is considering imposing a cap on AI chip exports for specific countries. Such a scenario would be setting practically a ceiling on export licenses for major chip manufacturers like Nvidia (NVDA). Please note that similar restrictions have allready been imposed by the US Government. The issue may weigh on NVIDIA fundamentally over the coming months as it could undermine its revenue.    

Major banks release earnings reports

The earnings season has began and we note that major banks, with the exception of Morgan Stanley (MS), which is due today, have released their reports allready. The releases gain on importance as the reports in an aggregated form may allow us to have a have glimpse on how well the sector is performing yet also tend to act as an indicator of health for the US economy. JP Morgan (JPM), BlackRock (BLK), Bank of America (BA), Goldman Sachs (GS) and Citigroup (C) all performed better than expected both on an EPS as well as on a revenue level, exceeding market expectations. One slight exception may be Wells Fargo, which missed its revenue target slightly. Overall the results tend to highlight the health of the US banking sector and boost optimism. Please bear in mind that the 3rd quarter of the year, the period related to the earnings releases, includes also the first rate cut by the Fed, yet the actual repercussions of the Fed’s tack and expected further easing of its monetary policy on the profitability of the banks are still to come. On a second note we also highlight reports that in a relatively volatile quarter, trading desks contributed heavily to the banks’ profitability. Characteristically Bloomberg reported that  “Goldman Sachs Group Inc., Bank of America Corp., Citigroup Inc. and JPMorgan Chase & Co. posted equities and fixed-income trading hauls that surpassed analyst estimates for the three months ended Sept. 30”. On the one hand, the news were encouraging as trading desks were able to deliver in such a volatile environment, yet on the flip side, there is high uncertainty if they will be able to deliver once again in the coming quarter, casting a shadow of a doubt on the earnings reports.

Earnings season returns

The earnings season is full swing and we note the release of the earnings reports of Netflix (NFLX) tomorrow, Procter & Gamble (#PG), BHP Group (#BHPGroup) on Friday and highlight Google’s Alphabet (GOOGL) next Tuesday, while next Wednesday besides Tesla (TSLA) we also get Coca Cola’s (KO), Boeing’s (BA) and IBM’s (IBM) earnings reports. 

Technical analysis

US100 daily chart

Support: 20100 (S1), 19470 (S2), 18720 (S3).

Resistance: 20800 (R1), 21500 (R2), 22200 (R3).

Nasdaq edged lower yesterday testing the 20100 (S1) support line. The upward trendline guiding the index since the 6th of September remains intact despite the correction lower yesterday, hence our bullish outlook remains intact. The RSI indicator remains close but above the reading of 50, implying a bullish predisposition of the market supporting the bullish outlook. On the other hand, the index corrected lower after hitting on the upper Bollinger band and the bullish prospects seem to remain narrow. Furthermore, the 20 moving average which is also the median of the Bollinger bands maintains an upward slope, supporting the bullish movement. Also please note that the Bollinger bands and converging implying less volatility which in turn may favour a stabilisation of the index’s price action. For the bullish outlook to be maintained we would require the index’s price action to form a higher peak than yesterday thus testing if not breaking the 20800 (R1) resistance line, which is an all time high level for the index, while we set the next possible target for the bulls at the 21500 (R2) resistance level. For aa bearish outlook, we would require the Nasdaq to break initially the prementioned upward trendline, in a first signal of an interruption of the upward movement and continue lower to break the 20100 (S1) support line, taking actively aim of the 19470 (S2) support base.