Bulls Are Large and in Charge... But a Major Test Awaits
Nvidia earnings will be the first test of the bull’s regained momentum.
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Good news on tariffs and a jump in consumer confidence on Tuesday gave the indexes a technical boost and put the bulls back in the driver’s seat. The danger that the gap created on May 12 on China tariff relief will be filled is averted for now and put the S&P 500 in a position to challenge the May highs.
The question now is whether the bulls can continue to generate buying momentum. The first test of that will come on Wednesday night when Nvidia NVDA reports quarterly earnings. AI, semiconductors, and the Magnificent Seven MAGS stocks have regained their luster since hitting bottom in April, but will be there be an inclination to sell the news after a very powerful run?
There is still plenty of concerns about the potential for a slowing economy and sticky inflation. Fed minutes will be released Wednesday and may address that to some degree, but that will be old news, and much has changed recently as the bond market has struggled and interest rates have risen. Bonds are indicated lower Wednesday, and that will be an important element in the ability of equity bulls to keep the momentum going.
One of the most interesting aspects of the recent market action has been the very high level of bearishness. A recent headline in Barron's was “Where Did the Bulls Go?" There has been a parade of high-level economists and pundits who are quite certain that the impact of tariffs and trade will soon be felt. There has even been talk about stagflation. JPMorgan Chase JPM CEO Jaime Dimon has been very cautious about the economy.
As those who use contrarian investment strategy know very well, this high level of negativity tends to be bullish because it usually indicates limited risk exposure and plenty of cash for buying. As the market starts moving counter to the negative view, it sucks in that cash and steadily climbs a wall of worry. That is what is occurring now, and it puts the bulls firmly in charge.
Conditions can change quickly, of course, but this sort of action creates strong support, and it is the bulls game to lose at this point.
At the time of publication, Rev Shark had no positions in any securities mentioned.
