When everybody is greedy, do the opposite

Where are equities now? Shall we be concerned on the high prices reached by stocks like Nvidia or even the Sp500, the Nasdaq or the DAX?

We think there are a lot of reasons to be concerned.

Here we attach two chart, the first chart displays the V2X Index, which is a measure of implied volatility for the EURO STOXX 50 index. In simpler terms, it tells us how much the market expects the European stock market to fluctuate in the near future. It’s often referred to as the “fear index” for Europe, similar to the VIX for the US market. The second one is the weekly chart of Nvidia.

Here’s a breakdown of what we’re seeing:

The V2X Index Line (White Line):

• This is the most important line, showing the current level of implied volatility.
• The V2X Index – Last Price on the left indicates the current value is 16.3860. A higher number means higher expected volatility (more fear or uncertainty), while a lower number suggests lower expected volatility (more calm).

What the Chart Tells Us about Euro Stoxx Volatility:

• Late 2024: Volatility was relatively low and stable, around 15-20. The “BUY SIGNAL” in December suggested an upcoming increase.
• Early 2025 (Jan-March): There was a massive spike in volatility, reaching levels above 45. This period likely corresponded to significant market uncertainty or events impacting European stocks. The large green “9” circle marked a peak, after which volatility began to decline.
• Spring/Summer 2025 (April-July): Volatility has been trending downwards since the March peak, settling back into a range between roughly 15 and 25.
• Current Situation: The V2X Index is currently at 16.3860. The presence of the green “13” circle suggests that the recent downtrend in volatility might be nearing an end, and we could potentially see an uptick in market choppiness. The green “1” and “2” next to the “13” indicate the start of a new potential upward sequence.

In Summary for a Private Banking Client:

“This chart helps us understand the ‘fear factor’ in the European stock market. We can see that after a period of calm in late 2024, there was a significant surge in market uncertainty (volatility) earlier this year, likely driven by major market events. Since then, volatility has subsided. Currently, the market is relatively calm, with the V2X index at 16.3860. However, some of our proprietary indicators (like the ‘TD Sequential’ marked by the green ’13’) suggest that this period of low volatility might be reaching an exhaustion point, and we could potentially see an increase in market fluctuations in the near future. This information can be useful for understanding the broader market sentiment and for making informed decisions about portfolio positioning, especially regarding strategies that benefit from, or are sensitive to, market swings.”

Okay, let’s now connect the V2X (European Volatility) chart to the NVIDIA (NVDA) chart and draw some conclusions for a private banking client regarding their equity exposure.

Linking the Charts: Volatility vs. Stock Performance

• V2X Index (European Volatility): As we discussed, this index measures expected price swings in the European stock market. High V2X means high uncertainty/fear, while low V2X suggests calm.
• NVIDIA (NVDA) Weekly Chart: This chart shows NVIDIA’s stock price movement over a longer period (weekly bars), from late 2020 to mid-2025, using the same TD Sequential indicator.

Key Observations and Interpretation:

1. NVIDIA’s Dominant Trend: The most striking feature of the NVIDIA chart is its massive uptrend. From late 2020, the stock has experienced an exceptional surge, with significant periods of strong upward momentum. This reflects its dominant position in the AI and semiconductor space.
2. TD Sequential on NVIDIA: Identifying Potential Turning Points
   • “9” and “13” Signals: Similar to the V2X chart, the numbers “9” and “13” on the NVIDIA chart indicate potential exhaustion of the current trend.
     • Notice the green “9” and “13” counts during NVIDIA’s strong rallies (e.g., late 2021, late 2023, early 2024, and now mid-2025). These typically appear at or near local tops, preceding either a consolidation or a pullback.
     • Conversely, red “9” or “13” counts (e.g., in mid-2022 and early 2023) appear at or near bottoms, often preceding a bounce or reversal higher.
   • Current Situation on NVDA: The chart clearly shows a new “13” Combo sell signal on the weekly chart, marked at the current price of around 172.04. This is a significant signal, as a “13” on the TD Sequential is generally considered a strong indication of trend exhaustion and a high probability of a reversal or at least a significant pullback. The red “1” and “2” next to it further confirm the start of a potential downside sequence.
   • Historical Performance of “13” Signals on NVDA:
     • The “13” in late 2021 preceded a multi-month decline.
     • The “13” in late 2023 also preceded a noticeable pullback before the rally resumed.
     • The current “13” appears after a truly parabolic move in NVIDIA.
3. Correlation with Volatility (V2X):
   • While NVIDIA is a US-listed stock and V2X measures European volatility, there’s often a general inverse relationship between equity market performance and volatility.
   • When a major stock like NVIDIA (which has a large impact on global markets due to its size and sector leadership) experiences significant rallies, it can contribute to a sense of calm and lower overall market volatility (V2X tending lower).
   • Conversely, if NVIDIA were to undergo a significant correction, it could trigger broader market concerns, potentially leading to an increase in V2X (higher fear).
   • We can see that the recent period of lower V2X (since April 2025) has coincided with NVIDIA’s continued strong performance.

Conclusions for a Private Banking Client Concerning Equity Exposure:

“Given the current analysis of both the broader market volatility (V2X) and specifically NVIDIA’s stock performance, here are some key takeaways for your equity exposure:

1. NVIDIA (NVDA): High Alert for a Pullback/Correction. NVIDIA has had an extraordinary run, but the appearance of a “13” Combo Sell signal on its weekly chart is a strong technical warning sign. Historically, such signals have preceded significant pullbacks or at least prolonged periods of consolidation.
   • Recommendation: For existing NVIDIA holdings, consider trimming positions to lock in profits, or implementing tighter stop-loss orders to protect gains. For clients considering new long positions in NVIDIA, it would be prudent to wait for a clearer re-entry signal after a potential correction or consolidation phase, rather than buying at what our indicators suggest is a point of exhaustion. The risk-reward at current levels appears unfavorable.
2. Broader Market Volatility (V2X): Currently Calm, but Watch for Changes. The V2X index indicates that European market volatility is currently relatively low. This could suggest a period of calm, but also means that any unexpected negative news could cause a sharper reaction.
   • Linking to NVDA: If NVIDIA, a key market leader, does indeed experience a significant correction as indicated by its TD Sequential signal, this could potentially trigger an increase in broader market volatility (V2X) as investor sentiment shifts from “greed” to “fear.”
3. Overall Equity Exposure Strategy:
   • Reduce Overconcentration: If your portfolio has become heavily weighted towards a few high-performing tech stocks like NVIDIA, now might be an opportune time to diversify and reduce that concentration.
   • Emphasize Quality and Value: In potentially choppier periods, focusing on companies with strong fundamentals, stable earnings, and reasonable valuations might be a more defensive strategy.
   • Maintain Liquidity: Having some cash reserves can be beneficial to capitalize on potential future buying opportunities during market pullbacks.
   • Revisit Risk Tolerance: Given the extended market rally and the specific signals on charts like NVIDIA’s, it’s a good time to re-evaluate your personal risk tolerance and ensure your portfolio allocation aligns with it.

In essence, while the market has seen strong performance from stocks like NVIDIA, our technical indicators are flashing a cautionary signal. We advise a more prudent and defensive stance on highly extended assets and recommend being prepared for potential increased volatility in the coming weeks or months.”