(Bloomberg) -- On Wall Street, all eyes are on Nvidia Corp.’s stock as chart-watchers search for signs the chipmaking giant will claw its way back from a DeepSeek-driven rout, given its power to sway the broader market.
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A wild week saw it testing a key line in the sand for technical analysts for the first time in more than a year. Revelations that DeepSeek’s AI model could rival those of OpenAI and Meta Platforms Inc. and was made on less expensive, older chips spurred the largest one-day rout in US stock-market history on Monday and sent Nvidia shares below its 200-day moving average.
The stock was testing that critical measure of momentum to technicians once again on Friday — and failed — after tumbling 3.7% closing around $120 a share, erasing an earlier gain. In the prior three sessions Nvidia’s stock rebounded enough to close above that 200-day measure. The stock now lingers some 20% below its record high.
The 200-day moving average is viewed as a key support, or resistance, depending on what side of it shares ultimately end up. Breaking — and staying — above the level could be a bullish signal that there’s further upside for shares. On the flip side, falling below the level could mean that there’s further downside ahead.
“If you started to see meaningful weakness in Nvidia, I think it would be overly optimistic to think the market will just continue to shrug that off,” Rich Ross, Evercore ISI’s head of technical analysis, said earlier Friday, before the stock reversed course.
Sea Change
The implications stretch beyond individual Nvidia shareholders. Given the company’s weight in the S&P 500 Index, its direction has outsized influence on the overall direction of the broader market. Though Nvidia was unseated as the top company in the world by market value — the spot once again belongs to Apple — it’s still the third largest in the S&P 500 and has a nearly 6% weight in the gauge.
Of course, the broader market could buck the trend and trade higher when Nvidia’s down, it just requires most other members of the S&P 500 to pick up the slack and trade higher. On Monday, an equal-weighted gauge of the S&P 500 ended the day slightly higher, outperforming the weighted version, which fell 1.5%.
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The worry is if Nvidia shares do fall below the 200-day moving average and keep trending lower, it could signal further downside.
“You could begin to start seeing more supply pressure on Nvidia as that level was not enough to hold and have buyers to step back in,” said Andrew Thrasher, a technical analyst and portfolio manager at Financial Enhancement Group.
Another concern is that momentum has started to drift, according to Thrasher. While Nvidia’s relative strength index reading hasn’t fallen below 30 since 2022 — a condition known as being oversold — momentum has been ticking lower.
“ The kind of regime shift from being a very strong momentum name to becoming oversold could begin to signal that regime is changing,” said Thrasher.
Nvidia isn’t the only Magnificent Seven stock that’s been testing such technical signs.
Earlier in January, shares of Apple dipped in its worst start to the year since 2008 and was near its 200-day moving average, also putting traders on high alert. The stock recovered, however, and is still above the key level even after slipping 0.7% Friday.
(Updates stock moves at market close, details throughout.)
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