Nvidia death cross warning: Should we brace for a market downturn?

A storm may be brewing in the markets as the infamous "death cross" has just appeared in Nvidia's stock, the Russell 2000 index, and most recently, Microsoft. This technical pattern, where a stock's 50-day moving average crosses below its 200-day moving average, has historically preceded some of the biggest market downturns.

The big question: Is this time different, or should investors prepare for more pain ahead?

Nvidia and Russell 2000: Early warning signs?

Nvidia's last death cross in April 2022 resulted in a near-48% decline over the following six months. Given the stock’s meteoric 948% rise since October 2022, its recent sideways movement could signal the AI-fueled rally is running out of steam.

Meanwhile, the Russell 2000, often seen as a barometer for broader market conditions, has flashed the same warning sign for the first time in 17 months. The last time this happened in October 2023, the index fell another 5.6% before finding a bottom. Small caps often act as a leading indicator of broader economic weakness, making this development particularly concerning.

Microsoft joins the list

Now, another tech giant is flashing a death cross: Microsoft. The stock has already dropped from $468 to around $389, a sharp 17% decline. This drop coincides with broader fears, including trade tensions, high valuations, and market uncertainty.

Yet, Microsoft remains at the forefront of AI adoption, with a staggering 67% of cloud environments utilizing OpenAI or its Azure OpenAI SDKs. Despite its dominance, Wall Street remains unimpressed. January’s earnings report showed strong numbers, but Azure’s growth fell short of sky-high investor expectations. The market had priced in perfection-Microsoft delivered merely “excellent.”

The bigger picture: A market in flux

While the S&P 500 has yet to confirm a death cross, its 50-day moving average is declining by about five points daily, placing it within striking distance. This comes at a time when election uncertainty, inflation worries, and geopolitical risks are already weighing on investor sentiment.

Notably, technical analyst Ari Wald of Oppenheimer offers a word of caution: “While every major decline starts with a ‘death cross,’ not every ‘death cross’ leads to a major decline.” In other words, while the signal is concerning, it’s not a guaranteed doom scenario.

Buy the dip or run for cover?

With AI playing a critical role in today’s market narrative, the upcoming earnings reports for Nvidia, Microsoft, and other tech leaders will be crucial in determining whether the bull run continues or if a deeper correction is underway. Microsoft’s April earnings, in particular, could be a pivotal moment for the AI trade.

So, is this the buying opportunity of the decade-or the beginning of an AI bubble burst? As investors weigh technical signals against fundamental strength, the market’s next move remains uncertain. One thing is clear: the coming months will be anything but dull.

At the time of writing, some buy pressure is evident on the daily chart. However, RSI remaining near-flat at the midline suggests waning momentum. Prices remaining below the moving average also suggests that the longer-term trend is down.

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