Nvidia earnings and Jerome Powell’s speech at Jackson Hole will be the biggest market movers this week. Outside of those two events, there isn’t a lot of news to move the markets. And that’s probably a good thing. After the worst decline since December, the market is ready for a much needed breather. During downturns, no news is good news. And that, combined with the technicals, could indicate a rally this week.
Last Week Recap
Last week capped off the worst 3 week drop in the stock market since December. Major stocks such as Tesla were down over 25% over the past 3 weeks, while the DOW dropped 2.5%, the S&P dropped 4.5%, the NASDAQ dropped 6.6%, and the Russell dropped 6.0%. While the pull-back might feel extreme, anything less than 10% is a normal pull-back in the stock market and nothing to be worried about. So long as the stock market does not fall more than 20%, the bull market remains in place. A fall between 10% and 20% would be considered a correction. A fall of more than 20% would be considered a new bear market. For now though, this small pull-back is normal during bull markets.
Market Sentiment
After months of greed and extreme greed, the fear and greed index (https://www.cnn.com/markets/fear-and-greed) fell 16 points last week to finish in the Neutral stage. Digging deeper, market momentum and stock price strength remain bullish – indicating stock traders remain bullish. It was actually the options traders that caused the fear and greed index to drop. The put call ratio rose above 1 for the first time since March. That means more options traders are buying puts than calls, indicating extreme fear among options traders.
The volatility index (VIX) rose again last week, but only up to 17.30. Any number below 18.50 represents bullishness. The VIX would have to rise above 20 for the market to signal bearishness. So despite the 3rd weekly decline in a row, the market sentiment remains bullish according to the VIX. Combined with the technicals discussed below, this could indicate a rebound rally starting this week.
Technical Analysis
The daily charts in all four major indices fell deeper into bearish territory last week, with all four indices closing 100 bearish. While technical analysis doesn’t show the markets oversold yet, the market did bounce off of key technical levels on Friday last week. Specifically, the DOW, S&P, and NASDAQ all bounced off of their 100 day moving averages, while the Russell bounced off of the 200 day moving average. That bounce on Friday could indicate a market rally this week and a re-test of previous support levels, especially the 50 day EMA on the S&P, NASDAQ, and Russell.
After another down week last week, the weekly charts are finally starting to show some bearishness. All 4 major indices closed below their 10 week EMAs. And while the NASDAQ formed the dreaded MACD death cross last week, the DOW, S&P, and Russel remain bullish on the MACD for now (although the strength is declining). The RSI remains slightly bullish on all 4 indices (between 50 – 55), but it’s closer to neutral than bullish. With the weekly charts turning bearish, the longer term outlook appears to be bearish despite the shorter term technicals appearing bullish. So it looks like whatever rally we do get this week will be short lived, and the bearishness will continue – possibly as early as Friday.
Economic News
The major economic news this week is the Jackson Hole Summit. Jackson Hole is the Federal Reserve’s annual summit. Think of it as a monthly FOMC meeting on steroids. The decisions made during this summit will affect the economy for the rest of the year. On Thursday at 10am Eastern Time, we’ll hear from some attendees of the summit. Then on Friday at 10:05 Eastern Time, Jerome Powell will speak. Powell’s speech often causes massive market movements. So be prepared for a major move in the market on Friday.
Here’s the full list of all of the economic news coming out this week as well as the time each report is being released: https://www.marketwatch.com/economy-politics/calendar
Here’s what time each Fed member is speaking this week: https://www.federalreserve.gov/newsevents/calendar.htm
Earnings
Although earnings season officially ended last week, we still have some major companies reporting earnings this week. The big one everyone will have their eye on is Nvidia, which reports Wednesday after the close. Other earnings to watch out for this week include Baidu, Toll Brothers, Peloton, and Snowflake.
Other Things to Know
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