MW Nvidia earnings alone won't rescue the S&P 500 from its new sell signal
By Lawrence G. McMillan
Overbought warnings come ahead of a massive tech and retail earnings lineup
Some significant, market-influencing companies are reporting next week - led by Nvidia and also including Cava Group, Home Depot, Target and Walmart.
Companies that could report earnings surprises show a particular trading pattern of implied volatility heading into the earnings. For example, the CAVA $(CAVA)$ two-year chart below shows two graphs - the stock price is on the bottom and implied volatility is on the top. Implied volatility increases into a spike and then plunges, creating a sawtooth pattern.
These implied-volatility increases occur as the earnings date approaches; then implied volatility plunges after the earnings are announced. It is actually something of an optical illusion - for the options are not getting more expensive in terms of price as the earnings date approaches, but are remaining the same. That is, the options market prices the straddle prior to the earnings, and more or less keeps it at that price until the earnings are announced.
An option that doesn't lose value to time decay (which these don't over the couple of weeks heading into the earnings) has the appearance of increasing implied volatility. So, every week when we publish the list of potential postearnings moves, they are stocks with this sawtooth pattern surrounding past earnings dates.
The table below highlights stocks to watch next week before earnings. This list normally is comprised of stocks whose options have higher implied volatility. That is, the options market is expecting a potentially volatile move after the earnings news.
Our approach is to attempt to buy the shortest-term straddle possible (generally the one expiring on the Friday after the earnings reporting date) and to exit at the close of the first full day of trading after the earnings have been reported. For the stocks in this table, that would mean buying the straddles expiring on May 22.
Specifically, the columns below (from left to right) are:
Date: The earnings reporting date.
Time: Whether the earnings are to be reported before the market opens ("AM") or after the close ("PM").
Symbol: The stock's ticker symbol.
Needed: The most we would pay for that near-term straddle, with the price of the straddle expressed as a percentage of the underlying stock price. In reality, this is the percentage move that is smaller than six of the past 10 postearnings moves in this stock.
OptVol: The 20-day average of total options volume on this stock. Low numbers here indicate a potentially illiquid situation.
Date Time Symbol Needed OptVol 5/19/26 AM HD 1.27% 20,800 5/19/26 PM CAVA 6.99% 6,673 5/20/26 AM TGT 6.74% 26,500 5/20/26 PM NVDA 3.24% 2,486,086 5/21/26 AM WMT 4.49% 88,847 5/21/26 PM DECK 14.17% 6,292 5/21/26 PM WDAY 6.21% 8,251 5/21/26 PM ZM 8.00% 20,149
Currently, none of the at-the-money straddles on the stocks in the above table are trading for less that the "count" percentage. But they should be checked just before the earnings are announced, for that would be the time to buy them if they do satisfy the "count" requirement. NVDA straddles are notoriously overpriced heading into earnings in recent quarters, although last quarter produced a 5% move after the earnings announcement.
New recommendation: Satellogic (SATL)
Satellogic (SATL) has had a couple of sharp moves higher this year, and a third may be starting. The stock went public in early 2022 and traded at a price of $10 for a brief while. Then it went into an extended decline until this year. Now it is trading at the highest levels since early 2022.
Stock volume patterns are excellent and so are options volume patterns. Both are in what we call strong momentum volume moves. That fact, coupled with the stock-price breakout to new relative highs, makes this an attractive speculation.
Buy 4 SATL (June 18) 8 calls in line with the market. Stop out on a close below $6.50.
Stock-market insight: First sell signals emerge
The S&P 500 SPX continues to make new highs, but the advance is narrowing considerably as both breadth and new highs on the NYSE are beginning to lag.
After an advance of this strength and speed, support levels are minimal. There is tentative support at 7,340 and at 7,275 (where a gap would be closed on the SPX chart). Below there, 7,050 to 7,175 is another support area, and then there is major support at 7,000.
SPX continues to trade above its +3<SIGMA> "modified Bollinger band" (mBB) for the most part. A "classic" mBB sell signal will occur when SPX finally closes below its +3<SIGMA> band; that would occur today on a close below 7,387. The bands are rising rapidly now, along with SPX and its 20-day moving average.
SPX first closed above its +4<SIGMA> band back on April 14. In the month that has followed, SPX has stayed above that band, for the most part. That is an amazing streak and is quite rare. But even if we get a classic sell signal (which we don't trade), there is no guarantee that the actionable MVB sell signal will follow.
While breadth and new highs might not be keeping pace with this rally, call buying certainly is. Equity-only put-call ratios continue to plummet, thus remaining on buy signals for the stock market. The weighted ratio is at its lowest levels since November 2021, but that only means it's overbought. There won't be sell signals from these ratios until they roll over and begin to trend higher.
New lows outnumbered new highs again on the NYSE for the second day in a row. While new lows have surpassed new highs by only a few issues, it is enough to stop out the previous buy signal from April 9. This indicator is now in a neutral status for the moment. Yesterday was an unusual day, in that both new highs and new lows on the NYSE numbered more than 100.
VIX VIX has not fallen recently, while SPX has risen. This indicates that traders are still a bit wary of this market and have likely been buying SPX puts to hedge long positions. VIX continues to hover in the 17 to 18 range, which is also near both its 20- and 200-day moving averages (circled area on the accompanying VIX chart). Currently, there is no trend of VIX signal in place.
The construct of volatility derivatives remains quite bullish in its outlook for stocks, though, since the term structures slope upwards and the VIX futures are trading at a premium to VIX.
The fact that SPX is making new all-time highs is bullish, but the first confirmed sell signal has now emerged. We will add positions as our indicators dictate. Continue to roll deeply in-the-money calls upward.
New recommendation: Breadth-oscillator sell signals
As noted in the commentary above, both breadth oscillators are now on sell signals once again. Therefore we are going to a bearish SPY SPY spread to our "portfolio."
Buy 1 SPY (June 18) at-the-money put and sell 1 SPY (June 18) put with a striking price 40 points lower.
We will hold this spread as long as either of the two breadth oscillators remains on a sell signal.
Follow-up action
All stops are mental closing stops unless otherwise noted.
We are using a standard rolling procedure for our SPY spreads: In any vertical bull or bear spread, if the underlying hits the short strike, then roll the entire spread. That would be roll up in the case of a call bull spread or roll down in the case of a bear put spread. Stay in the same expiration and keep the distance between the strikes the same unless otherwise instructed.
Also, for outright long options, roll if they become 8 points in-the-money.
Long 1 expiring TSEM (May 15) 220 call and short 1 TSEM (May 15) 235 call: The semiconductor sector is exploding, and TSEM $(TSEM)$ was up 50 points just today. The position has been rolled up several times. Now, roll to this spread: Buy 1 TSEM (June 5) 270 call and sell 1 TSEM (June 5) 295 call. Going forward, roll up - 25 points on each side - if TSEM trades at 235 or higher.
Long 1 BKR (July 17) 65 call and long 1 BKR (July 17) 60 put: Roll the BKR $(BKR)$ call up at 75 and roll the put down at 50.
Long 2 expiring ARKK (May 15) 78 calls: Roll to the ARKK (June 18) 78 calls. The trailing closing stop remains at $76 for these ARKK ARKK calls.
Long 1 SFL (Aug. 21) 10 put and 13 call: The calls were rolled up when SFL $(SFL)$ traded at $13 on May 13. Sell the puts now and begin to use a trailing closing stop at $11.80 for the calls.
Long 1 SPY (June 18) 730 call and short 1 SPY (June 18) 755 call: This is based on the "new highs versus new lows" buy signal. New lows outnumbered new highs on the NYSE for the last two days, so close out this position now.
Long 1 SPY (Jun 18) 730 call and short 1 SPY (Jun 18) 755 call: This is based on the equity-only put-call-ratio buy signals. They will remain in place until the ratios bottom out and begin to trend higher.
Long 2 expiring MHK (May 15) 105 calls: Roll to the MHK (June 18) 105 calls. We will hold these calls as long as the weighted put-call ratio of MHK $(MHK)$ remains on a buy signal.
Long 3 CCL (June 18) 27 calls: Sell these CCL $(CCL)$ calls now, since the put-call ratio has rolled over to a sell signal.
Long 3 expiring BWA (May 15) 55 calls: Roll to the BWA $(BWA)$ (June 18) 67.5 calls. We will continue to hold as long as the put-call ratio is on a buy signal.
Long 1 BNS (Sep. 18) 75 straddle: Roll the calls up to the 85 strike if BNS $(BNS)$ trades at 85. Similarly, roll the puts down to the 65 strike if BNS trades at $65.
Long 2 USO (June 18) 100 puts and short 2 USO (June 18) 90 puts: Continue to hold this USO USO position without a stop for now.
Send questions to: lmcmillan@optionstrategist.com
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May 14, 2026 15:58 ET (19:58 GMT)
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