Market Weekly Analysis: A Rally on NVDA Earnings Amid Initial Pessimism
This week, the market experienced a significant rally, largely buoyed by the earnings report from Nvidia (NVDA). Despite starting the week with a general sense of pessimism across the broader market and specific concerns regarding NVDA's price action, the post-earnings environment saw a broad covering of shorts, propelling the market upwards. The NASDAQ 100 (NDX) gained 221 points, the S&P 500 (SPX) increased by 83 points, and the Dow Jones Industrial Average surged by 503 points. However, the Russell 2000 (RUT) experienced a slight decline, dropping by 28 points. Remarkably, for the SPX, this marks the sixth week of gains out of the eight weeks completed this year, signaling a strong bullish trend.
Trend and Future Prices
Over the past three months and the last ten days, the broader market, including SPX, RUT, and NDX, has demonstrated an upward trajectory. Looking ahead to next week, the SPX is expected to see a price action range of 156 points, with an anticipated price change of +/- 65 points. The NDX could experience a broader price action of 830 points, with a range of +/- 310 points, while the RUT may see a price action within 120 points, expecting a range of +/- 45 points.
Support and Resistance
For the SPX, support levels are identified at 5029, 4961, 4900, and 4873, with price projections aiming for 5270 by March expiration. The nearest resistance lies at 5124. The NDX finds its supports at 17636, 17471, and 17171, with future projections reaching 18225 and 18756 for March. For the RUT, support levels are at 1979, 1960, and 1919, with resistance levels at 2043, 2058, and a March expiration projection of 2143.
Market Breadth
The Volatility Index (VIX) has settled back to a relatively low volatile range of 13.75, while the SKEW index has moved to the 144 range, and the Fear Index hovers at 78, indicating extreme greed with a peak level observed at 83. This suggests a critical range to watch between 80-65 for potential shifts. The dominance of algorithmic trading in the market underscores the importance of monitoring both simple and exponential moving averages, mathematical pivots, and the volumes of short-term call buyers which could lead to gamma squeezes, forcing market makers to adjust their positions significantly.
Correlations
The market correlations remain largely unchanged from the previous year, with bonds, gold, and copper continuing to show an inverse relationship with the general market trends. An interesting observation is the positive correlation of the VIX to the market last week, indicating a lingering uncertainty despite the market's upward movement.
Conclusion
The market's robust performance this week, driven by Nvidia's earnings, reflects the dynamic interplay of investor sentiment, algorithmic trading influences, and underlying economic indicators. While the broader indices have shown a promising upward trend, the slight decline in the RUT serves as a reminder of the market's complexity and the need for diversification. The current market environment, characterized by low volatility, extreme greed indicators, and significant algorithmic trading activity, suggests a cautious optimism. Investors should pay close attention to support and resistance levels, market breadth indicators, and correlation shifts as they navigate through the ongoing uncertainties. As the market continues to adapt to both technological advancements and economic developments, staying informed and agile will be key to capitalizing on opportunities and mitigating risks.