Big Tech Earnings on the Horizon: What Are the Signals from the Options Market?

As the new year begins, investors are eagerly anticipating the earnings reports from some of the world's largest tech companies. With the Nasdaq-100 index confirming a breakout, the tech-heavy index probed below 21,000 last week before reversing higher. This pullback included tests under its October high, December low, and 50-day moving average. Successfully holding a spot like that may suggest buyers remain in control, indicating a bullish sentiment for the tech sector.

Microsoft (MSFT) boosted market sentiment by announcing that data center investment is running higher than expected. Vice Chairman and President Brad Smith noted in a blog post that the software giant is building "AI-enabled datacenters to train AI models and deploy AI and cloud-based applications." This news eased worries about the AI boom slowing down and is potentially positive for Nvidia (NVDA), whose chips are crucial to machine learning and AI models.

NVDA will be in the spotlight this week with CEO Jensen Huang kicking off the consumer electronics show (CES 2025) this evening. He will present to analysts tomorrow afternoon and may reveal details about new products. Executives from other companies like Delta Air Lines (DAL) and Accenture (ACN) will also appear this week and discuss the potential for expanding AI investment.



Strong economic data has also contributed to the positive market sentiment. Initial jobless claims fell more than expected to their lowest level since April. Continuing claims, which measure ongoing unemployment, had their biggest drop in over a year. The Institute for Supply Management's manufacturing index rose more than forecast to its highest level in nine months. New orders, backlogs, production, and deliveries pointed to improvement following almost a year of contraction.

Energy stocks rose the most last week, partially due to surging natural-gas prices. This lifted companies like Devon Energy (DVN) and Diamondback Energy (FANG). Vistra (VST) and Constellation Energy (CEG) led a bounce in utility stocks after the Biden Administration loosened hydrogen-production rules. CEG also got a record-sized power-supply deal from the government.

However, materials were the weakest sector last week as the U.S. dollar strengthened and China's economy continued to struggle. Brown Forman (BF.B) had the sharpest decline in the S&P 500 after the U.S. Surgeon General recommended warning labels for alcoholic drinks. The maker of liquors like Jack Daniels was already sliding because of tariff worries. Tesla (TSLA) fell the most among the megacap companies after quarterly deliveries missed estimates. It shot to a new all-time high in mid-December and is now trying to hold early peaks from late 2021. TSLA is the seventh-largest member of the Nasdaq-100.

The S&P 500 slid 0.5 percent in the holiday-shortened period between Friday, December 27, and Friday, January 3. It was the third decline in the last four weeks. At one point, it was down 2.4 percent. Prices inched 3 points below their low on December 20 before turning higher, a potential sign that support is in place. The bounce also occurred in the same zone where the index peaked in October and bounced in mid-November after the election. Those points may further validate the support area.

Next, stochastics and Wilder's Relative Strength Index (RSI) are turning up from the bottom of their ranges. Those patterns may be consistent with prices bottoming. The nine-day rate of change turned positive as well. Similar occurrences, like mid-September and late November, were followed by upside in the stock market.

This week features some important economic events that could impact interest rates. The market is also closed on Thursday in memory of former President Jimmy Carter. Federal Reserve Governor Lisa Cook speaks this morning. ISM's service-sector index is tomorrow morning, along with the government's job-openings report (JOLTs). NVDA's analyst Q&A is at 3:30 p.m. ET. Wednesday morning brings ADP's private-sector payrolls report and crude-oil inventories. Minutes from the last Fed meeting at 2 p.m. ET could be important after policymakers issued a relatively hawkish outlook.

Investors should keep an eye on these events and the options market dynamics to make informed decisions about their portfolios. By staying informed about the signals from the options market and the broader economic landscape, investors can better navigate the opportunities and risks in the tech sector and the overall market.