Recent selling pressure should be nearly complete after having pulled back to test early February lows. Short-term momentum has gotten oversold, and many key large-cap tech stocks look to be in/near support. Furthermore, Treasury yields and the US Dollar have been breaking down sharply and I don’t see the correlation between Treasuries and Equities reversing anytime soon. Moreover, sentiment has continued to grow more and more negative, given the constant rhetoric regarding tariff uncertainty, and the larger intermediate-term uptrends for SPX remain very much intact. While I view a technical violation of February lows as about a 50%/50% chance, given that momentum is so strongly negative over the last four days, I feel it’s right to position long and simply expect that any further selling won’t prove too severe for the last few days of February before beginning a sharp rally up into March. Overall, I suspect that NVDA’s earnings very well could prove to be a positive catalyst for Technology and Equity indices after this sharp near-term downturn.
SPX lows should be near
Wednesday marked the second straight day of declining prices (Equal-weighted SPX fell -0.21%, DJIA fell -0.43%, while SPX rose +0.01%) while breadth proved to be positive. Technology, to its credit, rallied more than 1% while groups like Consumer Staples and Healthcare were hard hit, dropping more than 1%.
Treasury yields and US Dollar look to be close to support targets discussed earlier this week, and might stabilize and/or try to bounce in the short run. However, given that Equities largely did not rally as these fell, I’m doubtful that a minor bounce would result in Equities weakening.
As SPX charts show below, after four sharp down days, this seems to be an important area right near 5923. While it’s still hard to have real conviction of a meaningful low given the late-day selling in SPX ahead of NVDA’s results, I feel like lows should be in place by Monday, 3/3/25.
Any attempt of violating SPX-5900 should not lead to dramatic downside acceleration between now and next Monday in my view. A minor break might find support near 5850-5875, but I am largely expecting stabilization and a rally to begin in the days ahead. As shown below, the price seems to be much closer to support after this recent downdraft.
S&P 500 Index
My key points discussed yesterday on why a low should be near for SPX (Discussed in detail yesterday, but relaying bullets for today)
-Selling pressure looks to be abating.
-Treasury yields have begun to break down even more sharply.
-Stocks like META, AMZN, NVDA, GOOGL, and MSFT are all nearing technical support.
-Elliott-wave analysis shows a fairly distinct five-wave decline from 2/19 peaks.
-Short-term cycles bottom and go higher into early March.
-Intermediate-term uptrends from last August 2024 lows and from October 2023 lows are bullish, and have not been broken in SPX.
-Sectors that are important for SPX by market capitalization, like Healthcare, have been showing above-average strength in early this year.
-The equal-weighted S&P 500 has been gaining ground on SPX and QQQ in recent days.
For more information about any of the topics above, please refer to last night’s report from 2/25/25, “NVDA likely to trade higher into mid-to-late March initially.”
TSLA appears like an attractive risk/reward after recent weakness
–TSLA’s break of $314 opens this up for a likely challenge of $271-279, which has been tested no fewer than five separate times since September 2023. (Note, these were all former swing highs since the Fall of 2023, which should now represent support on weakness.)
–The stock is approaching a Fibonacci-based 61.8% retracement of its entire rally from April 2024 to December 2024.
–This support zone looks meaningful for TSLA structurally and also nearly aligns with an uptrend from April 2024 lows which currently intersects near $260.
DeMark-based exhaustion could materialize on daily charts by early next week, while weekly charts require at least another two weeks (for an 8-count to appear as part of a 9-count TD Buy Setup).
–TSLA cycles show a bottoming this week and a sharp rally up to late April before possible weakness in May into early June.
-Momentum has turned negative on a daily and weekly basis, while monthly momentum (all based on MACD) is positive.
-The 40% decline in TSLA since mid-December has caused daily RSI to reach oversold levels; However, utilizing RSI as a reason to buy is often quite difficult in my experience.
Overall, I like the risk/reward for buying dips in TSLA on this latest dip. TSLA is undergoing a very steep decline, and this week marks the 9th week of selling out of the last 11 weeks since the stock peaked back in mid-December 2024.
-While the stock has become a political stock given Elon Musk’s work within the current Administration through his DOGE efforts, the back half of 2025 looks likely as a period when many Fundamentally oriented investors feel TSLA might start to recognize some of their efforts. Furthermore, this is a time when cycles show the potential for more strength.
Tesla, Inc.
Tesla cycle composite seems to bounce into April before some selling pressure into June; the Back half of 2025 looks far more promising
Tesla’s decline given my daily cycle composite since late 2020 should be bottoming initially this week. However, this composite also suggests that the month of May into June might also show volatility.
While TSLA’s path does not necessarily need to reach former lows like the “pink line” might indicate (The composite line shows amplitude, not magnitude), it does appear like any sharp rally in the next two months in TSLA very well might require additional consolidation before it can begin a sharper rally back to new all-time highs.
Overall, my target for the stock given its break of $314 lies between $271-280. I anticipate an initial low in this range, followed by a sharp rally. Thereafter, potential weakness might be possible into late May or June before a larger rally. However, it’s unclear whether the stock would need to revisit the lows being made in February.
Bottom line, given this composite, the back half of 2025 looks far more promising for TSLA than the 1st half of 2025. Thus, investors will need to be patient, and wait for evidence of trends and momentum starting to show improvement.
Tesla Cycle Composite
NVDA put skew has gotten elevated on its 10% weekly risk reversal
(I posted these comments in Flash Insights on Wednesday, 2/26/25, but I am reposting them here for emphasis and/or for those who did not get a chance to read.)
Interestingly enough, the degree of negative skew is greater for implied volatility in NVDA 3.62% options than has been seen going back since 2023. This would seem to indicate more concern about potential disappointment and/or sustainability of the AI theme. However, it does lower the bar for a substantially positive surprise and Squeeze in the event of an earnings beat. The table below shows the 1 week “At the Money” (ATM) volatility along with 1 week 5% and 10% “Out of the Money” (OTM) Risk reversals.
The move implied by NVDA’s options suggests an 8.5% move after earnings. (Post Earnings comments: Thus far, ahead of Jensen Huang’s comments, NVDA has beaten both revenues and earnings by a slight amount, and the stock is higher in the after-market by +3% as of 5 pm EST.)
I stated last night that I felt resistance lies at $140 as resistance and $112 on the downside, which equates to a 6% advance and a 15% decline. Despite the sideways range since last June, I suspect that NVDA can move higher after earnings, given the uptick of recent momentum in the stock, along with Technology as a sector starting to stabilize near key support. Finally, as I showed last night, the cycle composite points higher for NVDA from now until early October, with a brief pullback potentially in April.
This dramatic rise in the put option implied volatility (Shown by 1-week risk/reversals of 10% downside puts vs 10% upside calls) has resulted in an extreme negative skew for NVDA. Thus, any hint of the stock turning higher might result in above-average short-covering and/or buying pressure potentially on Thursday, 2/27/25.
Near-Term Skews
