Bulls fought furiously on Wednesday; however, they could not overcome a series of body blows as cybersecurity issues swooned, states Jon Markman, editor of Strategic Advantage.
The Nasdaq 100 closed at 17,479, a decline of 0.4%. The weakness for the NDX was the third consecutive losing session and also left the index below its 20-day moving average for the first time on January fourth. Traders have recently become reluctant to buy big tech shares. Bears say that a corporate earnings recession is looming and given this tech stock valuations make no sense. Nvidia (NVDA) quickly became the obvious target of this narrative. However, on Wednesday bears pointed to the plummeting shares of Palo Alto Networks (PANW) as a shining example of what is wrong in the sector.
Palo Alto is a major cybersecurity company, servicing 85% of the companies in the Fortune 100. Bears say that slowing enterprise spending is why Palo Alto missed its 2024 sales forecast. Executives at the Company now expect revenues to rise by 15% year-over-year, versus the previous guidance of 17%-19%. Shares fell 28.5%. I would take the Palo Alto weakness with a grain of salt. The company has a long history of under-promising and then beating reduced expectations. Also, spending on cybersecurity is not something that corporations can easily cut. As more workflows move online security becomes paramount.
As for declining sales, and stretched tech valuations, after the close on Wednesday execs at Nvidia said quarterly sales rose by 265% to a record $22.1 billion on stronger demand for artificial intelligence products. Now we know why so many Wall Street analysts have been racing to increase sales estimates during the past week. Nvidia shares rose 8% in after-hours trade. Bears are wrong about AI. It will be interesting to see if the strength for Nvidia lifts the entire tech composite, though. Bulls need to push the NDX back above 17,537, the 20-day moving average. If they can achieve this objective on Thursday, good bears will concede a rally to 18,000, and perhaps the upside objective at 18,259. Support is now 17,071, the rising 50-day moving average.
