Technology bears started backpedaling on Wednesday from the opening bell, states Jon Markman, editor of Strategic Advantage.

They were understandably nervous ahead of the Nvidia (NVDA) earnings report. Frantic short covering into the close left the Nasdaq 100 at 15,148, a gain of 1.6%. 

The close for the benchmark was strategically slightly above the declining 20-day moving average at 15,111, and modestly below the rising 50-day market at 15,217. This middling close was a perfect setup for the Nvidia earnings report on Wednesday evening. 

Bulls and bears have been battling on both sides of the artificial intelligence chip designer. The former group is enthusiastic about the potential for a new secular trend in tech spending. AI could change every and this merits premium valuations for shares of the key businesses, according to Bulls. 

Bears claim AI is merely the latest hype cycle, akin to cryptocurrency and blockchain. It’s not so black and white. The results posted Wednesday by Nvidia Wednesday were breathtaking. The company earned $2.70 in the second quarter on sales of $13.5 billion. Analysts expected profits of only $2.09 per share and $11.2 billion in revenues. More importantly, these blowout results occurred after analysts busily raised their estimates three months ago. 

The demand from global data centers for Nvidia AI processors is off the charts and accelerating. We know from Arista (ANET) and Super Micro Computer (SCMI) that demand for the prerequisite switches and computers is also growing rapidly. Unfortunately, that is the AI story in a nutshell. It is all about Nvidia and the companies that support its gear.

Competitors are not merely being left out, they are losing market share. Bears are correct to complain about secular hype. AI is a Nvidia story. That may not save bears, though. If the NDX can close strongly on Thursday bears may be forced to cover shorts into September. 

A close above 15,217 will do the trick. The next resistance point would be 15,375, the July 24 low. Near-term support for the NDX is 14,557, the low on Friday. The worst-case scenario for bulls is a decline for the NDX to 13,656, the gap created by the May 24 to May 25 rally.

Double Trouble: Our Nasdaq 100 Timing Model is pointing south. Time to bid for a new 2x inverse fund to take advantage. Here’s the order: Buy a position in ProShares UltraShort QQQ (QID) at $13.25 or better. If filled, set up to sell all at $16.30 and set stop at $12.40. (Our last Double Trouble trade resulted in a 6.6% in.)

Learn more about Jon Markman here...