Fueled by the artificial intelligence boom, Magnificent Seven stocks like Nvidia, Microsoft and Amazon.com were the deserved darlings of Wall Street in 2023. But the first two trading sessions of 2024 have already brought new challenges for megacaps MSFT, AMZN and NVDA stock.
In the first trading session of the year, the Nasdaq stumbled, dropping 1.6% to test its 21-day exponential moving average. Mirroring that action, Nvidia, Microsoft, Amazon and a host of others on the IBD Breakout Stocks Index also retreated to gauge support or resistance at that line.
On Day 2 of the new year, those challenges continue as the Nasdaq pulled back over 1% again Wednesday.
Other bellwether tech stocks on this screen facing or failing tests at that benchmark include Advanced Micro Devices, Shopify, Workday, Monolithic Power Systems, ASML and NXP Semiconductors.
Video streamer Netflix also headed downstream Tuesday, slipping below its 21-day benchmark. Netflix stock closed well above its 50-day moving average. On Wednesday, NFLX stock came off the days lows but still closed belowits 21-day line.
While one or two days does not a trend make, Amazon, Nvidia and other names on the IBD Breakout Stocks Index have struggled to hold support around that mark.
For NFLX, AMZN, MSFT, NVDA and others, the 50-day benchmark may soon serve as the second line of defense in early 2024.
See Who Joins NVDA Stock On The IBD Breakout Stocks Index
3 Keys To Watch For NVDA Stock And More
We've already touched on one crucial measure to watch: behavior around key moving averages like the 21- and 50-day lines. How tech leaders like Nvidia, Shopify and Microsoft, as well stocks from other sectors, trade around those benchmarks will provide early signs of strength or weakness. On Day 2 of trading in 2024, Nvidia stock again slipped. On the bright side, volume came in below average and lower than in the prior session.
A second vital factor to monitor is volume. Tracking price and volume together remains the best — arguably, the only — way to take a true measure of demand, or lack thereof.
If NVDA stock or any other wavers or falls, monitor both daily and weekly volume trends. Is volume heavy or light on the downside? Dips and fluctuations are normal. But sharp declines below key moving averages in unusually heavy volume signal a potential change in trend for the worse.
On the flip side, if Nvidia, Shopify, Microsoft or others rise but volume remains well below average, that can point to hesitation or a lack of institutional demand for a continued climb.
Finally, keep tabs on a stock's relative strength line. Is the RS line rising, moving sideways or heading south? A rising relative strength line shows market leadership as compared with the S&P 500, which represents a wide swath of the market.
Evaluate NVDA, Magnificent Seven Stocks Using All 3 Factors
All three factors come into play when evaluating Microsoft, Amazon, Shopify, Nvidia and others.
Currently, NVDA stock provides a good example. The AI and automation giant has formed an early-stage flat base with a 505.58 buy point.
The stock now trades below its 21-day line but above its 50-day moving average. The relative strength line moved sideways last month and has edged downward so far in the new year. See if that can perk up when a potential breakout nears.
Also keep an eye on trading volume as NVDA stock closes in on the new buy point. On the day of any breakout attempt, look for volume at least 40% higher than normal to show conviction for the move.
As you watch Nvidia, Microsoft, Amazon, Shopify and other names on the IBD Breakout Stocks Index, analyze each against those same three factors. And be sure to view individual stocks within the context of how the market indexes are faring.
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Follow Matthew Galgani on X (formerly Twitter) at @IBD_MGalgani.
