Every week, there’s a whirlwind drama that sends shivers through the market, only to fade away as stocks claw their way back to fresh all-time highs. The major indices ($SPX, $NDX, and $DJX) seem invincible, fueled by this constant churn that leaves underperformers like the Russell 2000 ($RUT) trailing in the dust.

Traders are flocking to the hottest stocks ( NVDA SMCI ARM AMD SMH ), buoyed by the relentless ‘new highs’ reported daily by the Wall Street Journal. For now, it’s a strategy that’s paying off.

This past week provided a clear answer to whether a single stock can impact the market. NVIDIA Corp experienced an unprecedented one-day surge in market value, increasing by approximately $273 billion after announcing its earnings. This surge counteracted the prior pullback of the major indexes, effectively erasing those losses with Thursday’s gains. While there might be another pullback on the horizon, the market’s outlook remains somewhere between bullish and neutral. Additionally, the levels of implied volatility and the prices of options have risen slightly from earlier in the year.

The Bullish Case

As long as the $SPX chart remains in an uptrend, we’ll keep our core bullish position. Recent sell-offs have found support at 4920, 4840, and there’s a strong cushion between 4680 to 4800. It’s a testament to the market’s resilience.

Warning Signs

But are there cracks appearing? Equity-only put-call ratios recently hit new lows, a classic overbought signal. While there’s been a slight uptick, our analysis software highlights that a sell signal could be imminent – meaning we might anticipate a rise in these ratios. Should that materialize, a larger pullback could be on the horizon.

Also concerning is that market breadth hasn’t kept pace with the index highs. Our breadth oscillators briefly flickered ‘buy’ signals on Feb 8th-15th but quickly faded. They’re now dancing on the edge of a ‘sell’ signal.

VIX: The Uncertainty Indicator

The volatility index ($VIX) has been surprisingly subdued, save for a spike on Feb 13th in response to unsettling CPI data. Thankfully, the spike quickly reversed, forming a “spike peak” buy signal that’s still in play.

Our Strategy: Cautious Optimism

For now, we’re bullish, actively managing our positions as calls move deeper in-the-money. However, looming sell signals from the put-call ratios and breadth oscillators warrant close attention. If these signals materialize, we’ll adjust our positions accordingly, even as we maintain our core bullish stance.

The Bottom Line

The market remains in a curious state – bullish, resilient, but with underlying hints of potential weakness. It’s a time to trade with both conviction and agility. This week is brimming with economic events, featuring several housing reports and the most recent GDP update. A number of Federal Reserve officials are set to speak, especially on Thursday and Friday, pointing to a potentially dynamic week ahead. While the season for quarterly earnings is winding down, a few key companies are yet to report. Wishing everyone a week that’s safe, healthy, and prosperous!

– Feb 26: New Home Sales
– Feb 27: Durable Goods, Consumer Confidence
– Feb 28: GDP, Trade Balance
– Feb 29: Jobless Claims, Personal Income and Spending, Pending Home Sales

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