Market Preview: Look Out Below!

NEW YORK (TheStreet) -- This could get ugly. Really ugly.

JPMorgan Chase (JPM) and its fortress balance sheet are recording a very real $2 billion loss because of a "flawed, complex, poorly reviewed" trade in its synthetic credit portfolio, and shares of the Dow component were being taken to the woodshed in Thursday's extended session, plunging nearly 7% at last check.

And just like that, when stocks found some footing (at least for a day), mustering a mixed finish despite a 10%-plus haircut for Cisco (CSCO), the financials are suddenly a big fat question mark again. What other surprises are lurking where? Remember, the banks were finally providing some market leadership in the first quarter, one of the hallmarks of a healthy bull market.

Now those outsized gains make the sector all the more vulnerable to any hiccups, and this London Whale debacle more than qualifies. Bank of America (BAC), Citigroup (C), and Wells Fargo (WFC) were all taking hits in late trades.

From a big picture standpoint, this is a spectacular piece of bad news coming at a time when the broad market's trend is clearly negative so it may be wise to look out below. Thursday was a breather session without a tremendous amount of conviction behind the gains in the Dow and S&P 500, but the two preceding days each saw more than 4 billion shares change hands on the New York Stock Exchange, suggesting some real churning.

Friday also the potential for more ugliness from across the pond as the European Commission will be issuing its quarterly economic projections for member countries. Let's just say they aren't expected to be all that rosy, and the market could be in for a death by a thousand cuts-type situation. It's not new news, of course, that the growth has stalled but seeing the details in black-and-white promises to be jarring.

Jamie Dimon & Co. may have just tipped the balance for investors holding out for a good reason (rather than a clever turn of phrase) to sell in May.

As for Friday's scheduled news, NVIDIA (NVDA) is reporting its first-quarter results, and the average estimate of analysts polled by Thomson Reuters is for a profit of 10 cents a share in the April-ended period on revenue of $916.2 million.

The graphics chip maker hasn't been part of the relative strength in the tech sector in 2012 with shares falling nearly 10%. All eyes will be on gross margins this quarter after NVIDIA forecast a sequential decline down to 49.5% on a non-GAAP basis from 52.5% in the fourth quarter.

The sell side is decidedly bearish with 22 of the 36 analysts covering the stock at either hold (21) or underperform (1), although the 12-month median price target sits at $16, implying potential upside of 29% from Thursday's close at $12.42.

UBS has a neutral rating and $15.50 target on the shares, and it expects earnings coming in a penny below consensus.

"We limited upside, as AMD's [Advanced Micro Devices (AMD)] 28nm [nanometer] GPU [graphics processor unit] strength in the channel, a key driver of margins, may have been at the expense of NVIDIA," the firm said.

On guidance, UBS is expecting NVIDIA to forecast second-quarter earnings of 19 cents a share on sales of $1.01 billion as it benefits from the ramp of Intel's (INTC) new Ivy Bridge-based PCs, and recent design wins for its Tegra chip design. That view is a nickel above Wall Street's current view for a profit of 14 cents a share in the July-ending quarter, but the firm is still cautious.

"We remain concerned that: 1) NVIDIA's gross margin recovery may be slower than our +320 basis points fiscal first quarter to fiscal fourth-quarter 2013 estimate as improvements may require updated 28 nm designs that could take time to implement, 2) the graphics market may show a more precipitous attach rate decline in 2H [second half] as Ivy Bridge, AMD's Trinity ramp, 3) Tegra sales, while likely to grow in fiscal 2013 (+26% UBS estimate, +50% NVIDIA's estimate) would need to grow 37% just to cover R&D growth forecasts, limiting profitability gains," the firm said.

Check out TheStreet's quote page for NVIDIA for year-to-date share performance, analyst ratings, earnings estimates and much more.

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