Dow Jones futures fell modestly Monday morning, along with S&P 500 futures and Nasdaq futures.
The stock market rally generally retreated last week. The S&P 500 and Nasdaq hit fresh all-time highs on Friday before reversing lower in an outside day.
Nvidia was the clear culprit Friday, staging a bearish reversal after the AI chip leader had become historically extended. That reversal hit the broader market but especially fellow AI stocks like Advanced Micro Devices, Taiwan Semiconductor Manufacturing, Arm Holdings and Super Micro Computer.
Nvidia's reversal could be a blip or a character change after a massive run. It's definitely a wake-up call for complacent and euphoric investors.
It's a time to be careful and review your portfolio, especially if you have heavy exposure to AI plays.
Square parent Block and Brazilian brokerage XP Inc. flashed buy signals Friday. DraftKings is consolidating nicely.
Nvidia stock and Arm Holdings are on IBD Leaderboard, with SQ stock on the watchlist. Taiwan Semiconductor stock and Square-parent Block are on SwingTrader. Nvidia, DraftKings and ARM stock are on the IBD 50. Nvidia, AMD and Super Micro stock are on the IBD Big Cap 20. XP was Friday's IBD Stock Of The Day, with Square Wednesday's selection.
The video embedded in the article discusses the weekly market action and analyzes Nvidia, Square-parent Block and XP stock.
Dow Jones Futures Today
Dow Jones futures fell 0.3% vs. fair value. S&P 500 futures declined 0.3% and Nasdaq 100 futures sank 0.4%. Nvidia stock was a slight drag on S&P 500 and Nasdaq futures.
The 10-year Treasury yield edged down to 4.07%. Crude oil futures fell slightly.
Bitcoin rose to a new high, briefly topping $72,000.
Hong Kong's Hang Seng rose 1.4% after Chinese consumer prices climbed 0.7% in February vs. a year earlier, the first increase since December. Core CPI inflation hit 1.2% vs. a year earlier, a two-year high.
Remember that overnight action in Dow futures and elsewhere doesn't necessarily translate into actual trading in the next regular stock market session.
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Stock Market Rally
The stock market rally has paused, generally retreating last week after a pair of hefty tech-led sell-offs.
The Dow Jones Industrial Average fell 0.9% in last week's stock market trading. The S&P 500 index dipped 0.3% and the Nasdaq composite sank 1.2%, both pulling back from record highs Friday. The Nasdaq suffered three distribution days during the week.
The small-cap Russell 2000 gave up Friday gains but rose 0.5% for the week, hitting 23-month highs. Along with sector ETFs, the small caps reflect solid market breadth.
Heading into Friday, the Nasdaq was extended while Nvidia was greatly so. Bullish sentiment was near excessive levels. So a pause wasn't a surprise
A market pullback could be constructive, creating new opportunities to enter leading stocks. And an Nvidia retreat, if it lasts more than a day or two, might make investors less dangerously complacent.
The 10-year Treasury yield sank 9 basis points to 4.09%, its third straight weekly decline. The two-year Treasury yield, more closely tied to Fed policy, retreated 5 basis points to 4.48%. Fed chief Jerome Powell this past week again said there's no rush to cut rates. The jobs report and other economic data didn't change that, but may have eased fears that the Fed could scale back rate cuts.
U.S. crude oil futures fell 2.45% to $78.01 a barrel last week.
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ETFs
Among growth ETFs, the iShares Expanded Tech-Software Sector ETF fell 2.3%, though came off Tuesday lows. The VanEck Vectors Semiconductor ETF rose 2% for the week, despite Friday's 3.9% downside reversal led by top holding Nvidia. Taiwan Semiconductor and AMD are huge SMH holdings as well.
The SPDR S&P Metals & Mining ETF climbed 2.1% last week. The Global X U.S. Infrastructure Development ETF advanced 0.8%. U.S. Global Jets closed flat. The SPDR S&P Homebuilders ETF edged up 0.35%. The Energy Select SPDR ETF rose 1.2%, and the Health Care Select Sector SPDR Fund edged up 0.1%.
The Industrial Select Sector SPDR Fund gained 0.6%, extending a long win streak. The Financial Select SPDR ETF climbed 0.8%, and the SPDR S&P Regional Banking ETF jumped 4.1%.
Reflecting stocks with more speculative stories, the ARK Innovation ETF fell 0.8% last week and ARK Genomics tumbled 4%.
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Nvidia Stock
On Thursday, Nvidia stock closed 41.9% above the 50-day line, the most extended it's been since 2003. On Friday morning, shares raced up to 974 before reversing in a big, outside, bearish reversal. Shares closed down 5.55% to 875.28 in the heaviest volume of its current run.
Nvidia stock still jumped 6.4% for the week, its ninth straight weekly advance.
It remains 32.5% above its 50-day line and 11.1% above its fast-rising 21-day line.
Nvidia stock fell slightly early Monday, giving up modest gains.
Cantor Fitzgerald raised its NVDA stock price target to 1,200 from 900.
A deeper Nvidia pullback would have huge implications for the AI sector. That would of course include AMD, Taiwan Semiconductor, Arm Holdings and Super Micro Computer, all of which reversed lower Friday.
ARM stock will be in focus Tuesday, with an IPO lockup period expiring. Shares fell modestly early Monday.
Also feeling the effects would be software plays like ServiceNow, Palantir Technologies, Cloudflare and Datadog, along with dozens of other AI plays. ServiceNow and Cloudflare were flashing aggressive entries Friday morning before the Nvidia-led market reversal.
Given Nvidia's size and its clear AI leadership, an Nvidia retreat could have a major impact on the market rally — as Friday's action showed.
Obviously, Nvidia has been an enormous winner just this year after massive gains in 2023. NVDA stock could quickly bounce back and resume its sprint to 1,000. Shares could move sideways, or advance at a slower pace, as they did for a few months after getting extremely extended in late May.
Perhaps ideally, Nvidia would pull back gradually to the 21-day line or even forge a new base.
But if Friday marked a character change for Nvidia, even if only for short span, AI stock losses could be heavy.
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Stocks Near Buy Points
Square-parent Block rose 4.6% on Friday to 80.74. While SQ stock has an official high-handle entry of 83.29, shares broke the downtrend of the handle and topped the original buy point of 80.29. There's a lot of overhead resistance just above 80 going back years.
XP stock jumped 5.9% to 25.31 for the week in strong volume, rebounding from the 200-day moving average. Shares moved slightly above the 50-day on Friday, offering an aggressive entry. XP stock has an official buy point of 27.02 from a cup-with-handle base. The relative strength line has lagged for several months as the Brazilian brokerage consolidated.
DraftKings stock fell 4.1% to 41.74 last week. Shares have been consolidating for a few weeks around the 21-day line, just above the buy zone from a double-bottom base. Ideally, DKNG stock would forge a new flat-base base-on-base formation. That would also let the 10-week line close the gap further.
What To Do Now
What comes next may depend a lot on how Nvidia stock trades in the coming days.
Investors sitting on huge gains in AI stocks could choose to bank some profits or ride out any possible pullback. Investors in AI stocks that haven't run up much lately may have bigger decisions to make.
It's time to be cautious about new buys. But a number of sectors are doing well outside of the AI space. So take this weekend to update your watchlists, casting a wide net.
Remember, while AI stocks may be most vulnerable, most stocks would fall in a market pullback.
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