SP 500 still treading waters, NVDA in focus

The stock market didn’t do much yesterday, with the S&P 500 index extending a consolidation following run-up last week and closing 0.25% higher. Last Thursday, it reached a new record high of 5,325.49 after breaking above the previous highs from March and early April on Wednesday.

Last Monday, I noted ”The question arises: will the S&P 500 continue its bull market and reach a new record? It seems more and more likely; however, the index may see some short-term uncertainty as it approaches a series of the previous local highs and resistance levels.”

This morning, stocks are likely to open slightly lower, as indicated by the futures contract, which is down 0.2%. The market is awaiting two key releases: the FOMC Minutes at 2:00 p.m. and a quarterly earnings report from NVDA, scheduled to be released after the session closes. These events may lead to increased volatility.

Last Friday, I wrote “The most likely intraday scenario is more sideways trading action. Some investors seem to be taking profits off the table, yet no confirmed negative signals are evident.” It seems that early in the day today, it will be the same case.

Investor sentiment remained high last week, as indicated by the last Wednesday’s AAII Investor Sentiment Survey, which showed that 40.9% of individual investors are bullish, while only 23.3% of them are bearish. The AAII sentiment is a contrary indicator in the sense that highly bullish readings may suggest excessive complacency and a lack of fear in the market. Conversely, bearish readings are favorable for market upturns.

The S&P 500 remains elevated following its rally last week, as we can see on the daily chart.

Nasdaq 100 – Yet another new record high

The technology-focused Nasdaq 100 index reached a new record high of 18,721.18 yesterday, closing 0.21% higher. It continued to trade along a month-long upward trend line. The market is waiting for the very important quarterly earnings from NVDA, scheduled to be released today after the session closes.

VIX at a new low

The VIX index, also known as the fear gauge, is derived from option prices. In late March, it was trading around the 13 level. However, market volatility led to an increase in the VIX, and on April 19, it reached a local high of 21.4 - the highest since late October, signaling fear in the market. Recently, it was going lower again, and yesterday, it was as low as 11.84 showing a lot of complacency in the market.

Historically, a dropping VIX indicates less fear in the market, and rising VIX accompanies stock market downturns. However, the lower the VIX, the higher the probability of the market’s downward reversal.

NVDA before earnings: Hovering along record high

The NVDA stock is likely to break out of a short-term consolidation on its quarterly earnings release today after the session closes. Recently, it has gotten back close to the record high from March 8 ($974.00). For the last few sessions, the stock has been fluctuating within a relatively narrow trading range; hence, following today’s release, it is likely to break that range. However, if the stock rallies to new record highs, profit-taking action and ‘sell the news’ may follow.

Futures contract: More fluctuations

Let’s take a look at the hourly chart of the S&P 500 futures contract. Last Thursday, it pulled back from a new all-time high of around 5,349 and has been fluctuating since then. For now, it looks like a relatively flat correction of the uptrend. The resistance level is at 5,350, with support at 5,300, among others.

Conclusion

The S&P 500 index is likely to further extend its short-term consolidation this morning after opening slightly lower, as indicated by the futures contract. However, later in the day, the market may become much more lively. Investors are awaiting the FOMC Meeting Minutes release at 2:00 p.m., and especially the already-mentioned earnings from NVDA.

The S&P 500 remains close to a new record high, and no confirmed negative signals are evident as investor sentiment remains elevated. However, that overly bullish sentiment, coupled with low VIX readings, may be worrying for stocks in the short term. Some profit-taking may be on the horizon.

On May 7, I wrote “(…) the market may pause or even retrace some gains. With most of the earnings season over (there is only one very important release left - NVDA on May 22) and the FOMC Rate Decision release behind us, expect a period of uncertainty.”

In my Stock Price Forecast for May, I noted “Where will the market go in May? There's a popular saying: 'Sell in May and go away,' but statistics don't consistently support such clear seasonal patterns or cycles. The safe bet for May is likely sideways trading, with investors digesting recent data suggesting that inflation may not be transitory, and the Fed could maintain its relatively tight monetary policy. However, economic data isn't entirely negative, and strong earnings from companies may continue to fuel the bull market.”

For now, my short-term outlook remains neutral.

Here’s the breakdown:

• Investor sentiment remains elevated ahead of the important NVDA quarterly earnings release.

• On Friday, April 19, stock prices were the lowest since February, indicating a correction of the medium-term advance. Last week, the S&P 500 retraced all of its mid-April sell-off, reaching a new record high above 5,300.

• In my opinion, the short-term outlook is neutral.

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