Last night, artificial intelligence and market leader NVIDIA (NVDA) again blew out earnings. Nevertheless, the reaction to NVDA’s earnings was muted, as the blowout earnings appeared to already be priced in. Meanwhile, on Thursday, U.S. equities erased early losses to finish the session green amid fresh hopes of a U.S./Iran deal. Let’s break down the different crosscurrents that exist in this market to give investors an idea of what might be to come over the next few months.
Technical View: Bulls Remain Firmly in Control, Though Targets Have Been Met in Some Stocks
The Nasdaq 100 Index (QQQ) just delivered one of the most impressive two-month gains ever. Since bottoming in late March, QQQ has gained approximately 30% off the lows – highly unusual action for a market coming out of a correction (and not a full-fledged bear market like COVID or Tariffs). Although QQQ has come a long way, the bulls remain in control. QQQ continues to hold the short-term 10-day moving average and is currently forming a daily bull flag pattern.
Image Source: TradingView
At the same time, a handful of leading stocks have reached extreme Fibonacci 4.236%, including Micron (MU) and SanDisk (SNDK).
Image Source: TradingView
Conversely, other stocks like Cipher Mining (CIFR) are setting up bullish base structures but have yet to break out.
Image Source: TradingView
Seasonality & Sentiment: Mixed
Historical seasonality trends suggest that equities tend to pause in the months leading up to midterm elections. With the S&P 500 Index already up more than 25% in Trump’s second term, a pause at these levels would not be a huge surprise.
Image Source: @RyanDetrick, Carson Research, FactSet
Meanwhile, despite the historic run off the market lows, investor sentiment is surprisingly subdued. In fact, according to the AAII Investor Sentiment Survey, bearish sentiment currently outweighs bullish sentiment.
Image Source: AAII
Macro / Interest Rates / Oil: Leans Bearish
With most of earnings season out of the way, there is little in the way of market catalysts. With a peace deal allegedly pending, geopolitical optimism about Iran is already priced into markets. Meanwhile, betting markets suggest (with very high odds) that incoming Fed Chair Kevin Warsh will not be in a rush to cut interest rates. Finally, oil prices remain elevated. However, the US Oil Fund ETF (USO) potentially just staged a false breakout.
Image Source: TradingView
Finally, a spate of new IPOs, including SpaceX, may suck liquidity from markets. Additionally, many hedge fund managers leave for vacation after Memorial Day weekend, leading to lighter trading volumes and a choppier trading environment.
Bottom Line
Ultimately, investors are looking at a classic push-and-pull environment over the next few months. While the underlying charts prove that buyers are firmly in control of this tape, the combination of fully priced-in good news, shifting leadership at the Fed, and unfavorable mid-term election seasonality suggests the easy money has been made for now. Navigating this next phase successfully will require patience and selective stock-picking, watching closely to see if the broader macro headwinds can finally disrupt what has otherwise been a remarkably resilient technical backdrop.
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Micron Technology, Inc. (MU): Free Stock Analysis Report
NVIDIA Corporation (NVDA): Free Stock Analysis Report
Sandisk Corporation (SNDK): Free Stock Analysis Report
Invesco QQQ (QQQ): ETF Research Reports
United States Oil ETF (USO): ETF Research Reports
Cipher Digital Inc. (CIFR): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).