The S&P 500 was up 0.1% in the final hour on Friday, keeping it on course for a seventh consecutive advance. From Wednesday, 20 May, it rose from 7,353 to a record 7,599, although early gains faded after reports that Russia had fired a drone at a Romanian apartment building, raising wider geopolitical risk for a NATO member.
The index was supported by sharp moves in Dell Technologies and NetApp. NetApp exceeded fiscal fourth-quarter earnings expectations and lifted its revenue outlook; Barclays raised its price target to $199 from $134 after the company issued fiscal 2027 revenue midpoint guidance of $7.45bn versus $6.93bn in fiscal 2026. Dell climbed more than 30% after increasing full-year guidance, forecasting $60bn of fiscal 2027 AI server revenue within $167bn of total revenue at the midpoint, and reporting first-quarter fiscal 2027 revenue of $43.8bn, up 88% year on year. Technicians also pointed to the index staying above its 20-day SMA since 7 April, with the 50-day SMA near 7,060 and prior resistance around 7,000.
AI Momentum Versus Market Exhaustion
The market is at a critical juncture, with the S&P 500 hitting an all-time high of 7,599 after seven straight days of gains. We see this as a time for caution rather than aggressive bullishness, even with the incredible strength in tech. The narrow gain on Friday suggests momentum is fading.
We believe the AI-driven rally in names like Dell and NetApp is the primary force holding the market up. The Philadelphia Semiconductor Index (SOX) has surged over 15% in May alone, confirming the intense investor appetite for anything related to artificial intelligence. This strength makes buying short-term call options on dips in the tech sector a viable strategy.
However, the technical picture suggests the market is overextended, having not touched its 20-day moving average since early April. Historically, when the index stretches this far above its key moving averages, a pullback of 5-8% often follows within a few weeks. For this reason, we are buying put options on the SPX as a hedge against a sharp downside move.
Geopolitical Risks and Option Strategies
The new geopolitical risk from Russia’s drone strike in Romania is a serious catalyst that the market seems to be ignoring. The CBOE Volatility Index (VIX) closed Friday near multi-year lows at 12.8, meaning option-based insurance is unusually cheap right now. We view this as a clear opportunity to build protective positions before volatility potentially spikes.
Given the conflicting signals of strong AI fundamentals and rising external threats, we are also positioning for a large move in either direction. Straddles on the S&P 500, which involve buying both a call and a put option, look attractive. This strategy will profit if the market either breaks out significantly higher or experiences the harsh pullback we anticipate.
Our key trigger remains the 20-day Simple Moving Average, which we calculate is sitting near 7,450. A daily close below that level would be our signal to increase bearish bets. The primary downside target in that scenario would be the 50-day moving average around the 7,060 level.
