The news that Russia had pulled some of its troops from the Ukraine border helped the stock market rally nicely yesterday. The vast majority of the advance for the S&P 500 came in the first fifteen minutes of trading…and its breadth deteriorated as we moved through the afternoon. (It went from 9 to 1 positive at 11:00 to 4 to 1 positive at the close.) HOWEVER, the Nasdaq’s rally did continue after its initial morning surge…and this was particularly impressive given that the yield on the 10yr note remained elevated all day……We’d also note that the rally took place despite a rise in inflation concerns…with the stronger than expected PPI number yesterday morning. Therefore, it was certainly a good day for the stock market.

The bounce we have seen off the Monday afternoon lows still leaves us below the early February highs, so it’s going to have to see more upside follow-through going forward. One of the key reasons why it’s going to be important for the market to rally further near-term is because the rally off the late January lows is at risk of losing momentum. On the technical side of things, one very good indicator of momentum is the MACD chart. For the S&P 500 Index, the MACD chart has curled over a bit in the last week. If, (repeat, IF) it sees a negative cross soon, it will take place at a lower level for the second time since November (and it would take place below zero). That kind of development would raise a big red flag for the stock market on a technical basis as we move through the second half of the first quarter.

Again, we’re not there yet. Yes, its MACD chart is getting quite close to a negative cross, but if yesterday’s rally can gain some steam…it will give us some relief on this technical situation. In other words, if the S&P 500 can rally nicely over the week or more, it will be able to avoid that negative cross. More importantly, if the S&P can push above its highs from February 2^nd, 9^thand 10^th (near 4,600), it’s going to be quite bullish…as it would give this key index a nice “higher-low/higher-high” sequence…….In other words, the next week or so should be very important for the stock market. (S&P 500 MACD chart is the first chart attached below.)

There is one item that could play a very important role in determining which way things break over the near-term. We’re talking about tonight’s earnings report out of Nvidia (NVDA). No, we are not saying that it will definitely be the most important development this week. The earnings for NVDA could come right in line with expectations…and the stock might not move much at all. However, if its earnings report DOES turn out to be a catalyst for a big move in the stock (one way or another), it could/should be quite important for the broad market as well.

This is something we highlighted in our weekend piece last weekend, but we do think it’s important enough to review once again. So, at the risk of being repetitive, we’d like to go over the technical situation for NVDA again this morning……..As we said this past weekend, NVDA has the second highest weighting in the SMH semiconductor ETFF…so not only could their earnings have a big impact on the stock, but it could/should have a big impact on the SMH as well. (Since the chip stocks have been an important leadership group for the market, it could/should have an impact on the broad market.)

Looking at the chart of NVDA, you’ll see that its next big move is going to be very important on a technical basis. We’ll be watching both the 200-DMA and the 100-DMA…as the support and resistance levels (respectively). We’ll start with the 100-DMA resistance level. The 100-DMA was the “old support” level (from October of last year), so it has become the “new resistance” level. NVDA got right up to that line on both Wednesday and Thursday of last week…and rolled back over. Therefore, if it can finally break above the 100-DMA in a meaningful way, it should be quite bullish. We’d also note that a significant break above the 100-DMA would take the stock above its trend-line from November…AND give it its first “higher-high” since then as well. (That trend-line from November is not drawn on the chart below.) So, there is no question that if the earnings report is the catalyst for a strong rally in NVDA, it’s going to be a very bullish development.

On the support side of the equation, the 200-DMA provided excellent support for NVDA back in March of last year…and then again in May. Sure enough, it provided very nice support once again this January. It bounced around that line for five trading days…and even closed slightly below it on one day. However, it was finally able to pull away from that line…and rally nicely over the past two weeks. In fact, it has already moved back up to the above-mentioned 100-DMA.

However, if the earnings report is a catalyst for a decline in the stock, it could quickly take it below the 200-DMA…which would not be good. If that happens (which is a big “if”), that would also take it very close to its January lows. Any move below that level (of $219.50) would give the stock another “lower-low” in a series of “lower-highs/lows” since November. On top of that, it would likely give it a negative cross on its MACD chart. As you can see from the second chart below, confirmed negative MACD crosses have been followed by some material (further) downside movement for NVDA.

Okay, we’ve used a lot of words to describe the technical situation that exits for NVDA, but a picture is worth a thousand words. Therefore, the second chart below should give you a better idea of what we’re talking about when it comes to this key tech stock.

Having said all this, we are certainly not trying to say that the only thing we should be focusing on today and tomorrow is NVDA’s earnings…and the stock reaction to those earnings. We’re saying that it’s something that could have a big impact…IF the stock sees a big move in reaction to those earnings (and guidance)……We still have bonds yields, credit spreads, earnings from other companies, Ukraine, etc. to keep us on our toes. So, we would expect the recent volatility to continue…in both directions…even if NVDA earnings report ends up being a rather benign event………One way or another, however, the action in the S&P 500 index over the next week or so should be very, very important.

Matthew J. Maley

Chief Market Strategist

Miller Tabak + Co., LLC

Founder, The Maley Report

TheMaleyReport.com

275 Grove St. Suite 2-400

Newton, MA 02466

617-663-5381

mmaley@millertabak.com

Although the information contained in this report (not including disclosures contained herein) has been obtained from sources we believe to be reliable, the accuracy and completeness of such information and the opinions expressed herein cannot be guaranteed. This report is for informational purposes only and under no circumstances is it to be construed as an offer to sell, or a solicitation to buy, any security. Any recommendation contained in this report may not be appropriate for all investors. Trading options is not suitable for all investors and may involve risk of loss. Additional information is available upon request or by contacting us at Miller Tabak + Co., LLC, 200 Park Ave. Suite 1700, New York, NY 10166.