Mid-week market update: On the weekend, I presented this inverted chart of the S&P 500 as a different perspective and rhetorically asked, “Would you buy a stock with this chart?”
Don’t just obsess over NVIDIA
At the time, I had a slight bearish tilt on the market. Since then, the news backdrop has been calming. Trump extended the deadline for the implemented of the 50% tariffs on EU imports from June to July. The Japanese long bond initially rallied on news of a lower than expected supply, though the auction overnight of the 40-year JGB was disappointing. Consumer confidence unexpectedly improved, and the prospect of a nuclear deal with Iran may be on the horizon, which would reduce the geopolitical risk premium.
The S&P 500 calmed as well, and it’s now back to test the trend line. The next big catalyst is the NVIDIA earnings report due after the close today.
While NVIDIA will largely determine the market’s short-term direction, investors can find other pockets of superior performance.
All Eyes on NVIDIA
I have not special insight on NVIDIA. The latest implied pricing for a post-report move on the stock from the option is a 6% swing. My assessment of the risk/reward is it’s slightly tilted to the downside. NVIDIA is a Magnificent 7 stock that has enjoyed solid gains while EPS estimate revisions are the best in the group. Expectations are tilted to the upside. While there is room for disappointment, the actual results and reaction is probably not much different from a coin flip.
From a technical perspective, the technology sector is losing relative momentum, which could be problematic regardless of NVIDIA’s results. Relative performance and relative breadth indicators are all falling, though positive.
Opportunities in banks and financials
Instead, investors may find better opportunity for relative performance in banking and financial stocks. Fund flows into KRE, the bank ETF, have been extremely week, which presents a contrarian opportunity.
On the other hand, financial stocks are testing a relative support level while relative breadth indicators are positive while trending sideways.
This combination of negative sentiment and positive technical backdrop argues for limited downside risk while presenting upside potential.
You see – there are other ways of playing the market other than obsessing over NVIDIA.