Battle on Two Fronts

NVIDIA is, of course, the focal point of this week's action, with earnings set to report Wednesday after the bell. True, we also have GDP and PCE data points later in the week. But NVDA, as the marquee mega cap at the epicenter of the AI mania, should determine whether bulls continue to party. 

That said, this earnings week is also a kind of battle on two fronts. 

Specifically, both Home Depot and Lowe's report, Tuesday and Wednesday mornings, respectively. We have always noted for Members that when HD reports it ushers in the final third of earnings season, dominated by retail players reporting their numbers. 

And that is all the more important in this market climate, as much rides on whether the great American consumer can continue to splash around. We know that the wealthiest Americans are still flush. However, most Americans are struggling to make ends meet as a consequence of both entrenched inflation and a seemingly frozen labor market, especially in the private sector as years of government jobs masking private sector weakness. 

Put another way, even the slightest pullback in spending from the ultra-high net worth consumers could lead to some disastrous reactions this earnings season, since the rest of the consumer demographic figures to be tapped out, or close to it, particularly when it comes to  discretionary purchases. 

On the XRT retail ETF monthly chart, below, note the lingering divergence from the late-2021 top. Retail never came close to printing to new highs even during the endless melt-ups on the senior indices and mega cap tech names. In fact, I would argue we are looking at a multi-year bearish rising channel, already threatening to break down as speak. 

Hence, not only will NVDA be market-moving this week but the next several weeks of retail names reporting should give insight as to whether this massive bear wedge resolves lower and confirms the multi-year divergence to the broad market.