Welcome back, everyone.
I hope you all had a great session yesterday, navigating the sell-off through the morning before the rally back into the close. We had three distinct trading opportunities. The first was the short before the open as price approached the short level. The second was the break above the long level, which offered limited upside as the market balanced into the close. The third trade came from a chat update sent during power hour; I expected selling pressure to step in for a move down toward the 6889 POC. While price fell just short of this end-of-day target, we still captured over 100% on the SPX/SPY option contracts.
Here’s the levels posted in yesterdays letter:
Here the chat update sent out during power hour:
The President’s State of the Union address is now out of the way. Many tuned into this last night, though I was not one of them. All I care about is market price; the “why” is often less relevant than one might think. We could have expected the President to be bullish on everything regarding America and to comment on how interest rates are hurting us more than we realize. Overall, this changes nothing in terms of investor sentiment. Recent GDP data showed a major slowdown, and we now head into today with Nvidia earnings on deck.
As of right now, this earnings report is the only saving grace this market has. Tech needs Nvidia to deliver a strong report, as the unraveling of AI is currently only showing up in software stocks. If this sentiment spreads to semiconductor stocks as well, we could see the recent selling broaden significantly.
Nobody knows what the report will show, but we do know that Wall Street has set absurd projections. I personally don’t think the company will exceed expectations, which could bring a shock to this explosive sector. Looking at software, it is clear that AI is not yet bringing the expected returns. These software companies are the main drivers of AI and are primary customers of Nvidia. It is quite shocking to see such high projections for Nvidia’s earnings when the companies actually using AI are struggling to retain customers or see growth.
The earnings could very well be good, but I don’t believe they will meet these massive expectations. Consequently, we could see another wave of selling in the tech sector. There is no reason to dive deeper into expectations; either the market continues to balance, or we see another strong wave of selling, primarily in the NASDAQ.
Outside of Nvidia earnings, there isn’t much to say about the market as we are simply in a stage of balance. Looking at the last two sessions of the week, we saw a strong sell-off that closed near the lows, followed by a session that opened near those lows and rallied all the way back, retracing nearly all the downside. For now, we can continue to expect balance while remaining inside the current large value area. Let’s dive into the S&P levels for today’s session.
