Nvidia, a leading technology company, has once again impressed investors with its strong earnings report. This positive news has managed to suppress bearish sentiment in the stock market, particularly in relation to the S&P 500 index.
The stock market experienced a modest pullback before Nvidia’s earnings report, causing the S&P 500 to touch its rising 20-day moving average for the first time since mid-January. Despite this slight dip, the index quickly rebounded after Nvidia reported positive earnings, resulting in a gap up. With the index’s chart showing a positive trend, it is clear that a bullish position is still warranted.
While bears have attempted to engineer severe down days in recent weeks, there has been no significant follow-through. In fact, these short-term pullbacks now represent support levels at 4,950, 4,920, and 4,840. The major support area lies between 4,680-4,800. As the index is currently trading at all-time highs, there is no formal resistance. However, it is worth noting that the +4σ “modified Bollinger Band” (mBB) is at 5,100 and rising.
Although the “classic” mBB sell signal is still technically in effect, it is not recommended for trading purposes. Instead, traders should wait for further confirmation of a McMillan Volatility Band (MVB) sell signal, which would only occur if the S&P 500 drops to 4,903. Given the current market conditions, it is unlikely that this will happen in the short term.
The equity-only put-call ratios have experienced a significant decrease and are now turning upward. Computer programs analyzing these charts have graded both ratios as being on sell signals. However, it is important to note that the last sell signals issued near the end of the year were not successful. Traders should carefully monitor these ratios as they have a historically profitable track record. Although new highs continue to dominate new lows on the New York Stock Exchange, it is important to note that volatility spiked on February 13 during heavy selling in the S&P 500. This spike peak created a buy signal, indicating a bullish trend for stocks as long as volatility remains at low levels.
The construct of volatility derivatives remains bullish for stocks, with no significant changes occurring despite occasional days of sharp selling. Traders should pay attention to the price of the March VIX futures compared to that of the April VIX futures. If March were to trade above April, it would be a major negative sign. However, this scenario has not yet occurred.
In terms of new recommendations, APA Corp. (APA) has generated a weighted put-call ratio buy signal. However, traders should wait for APA to close above 32.50 before entering a position. Similarly, Baker-Hughes Co. (BKR) has also generated a buy signal based on the weighted put-call ratio. Traders should wait for BKR to close above 30 before considering this recommendation.
In summary, Nvidia’s strong earnings report has had a positive impact on the stock market, suppressing bearish sentiment and maintaining a bullish outlook for the S&P 500 index. While some sell signals have emerged, the overall market conditions and positive chart trends suggest that a “core” bullish position is still favored. Traders should closely monitor the equity-only put-call ratios and volatility levels to make informed decisions in the market.
