Earnings season is just starting, and it looks like the biggest market mover this week will be the economic news being released. The markets are still trying to decide if the economy is going to pull off a soft-landing, or if we’re going to get a recession. Some of the data has been bad, and some has been hopeful. This week will give us a clearer picture though, and that could move the markets in a big way. In addition, don’t forget that the bond market is closed on Monday for Columbus Day, but the stock market is open.
Also, check the end of this newsletter for a special offer just for newsletter recipients 🙂
Last Week Recap
The stock market continued rallying higher last week, with the DOW, S&P 500, and NASDAQ all up 1.2%. This now marks the 5th weekly gain in a row for all 3 indexes. After bad jobs data the last two months, September’s jobs data came in surprisingly good, which allowed the markets to avoid the typical sell-off in the first week of the month. That’s why we’ve now seen 5 green weeks in a row without a sell-off.
The markets have been helped significantly by Nvidia, which is up 31% over the past 5 weeks. AI hype remains strong with Nvidia saying it’s new Blackwell chip is sold out for the next 12 months. It hasn’t been great for all of the mega-cap tech stocks though. Tesla’s stock fell more than 8% on Friday after its robotaxi debut disappointed investors.
Most interesting is the fact that last week’s CPI inflation data came in higher than expected, showing an increase in inflation and lowering the chances for rapid Fed rate cuts. While the markets initially sold off from this news, they recovered and posted strong gains on Thursday and Friday. Bonds and bond ETFs weren’t as lucky however, and the repricing for fewer than expected Fed rate cuts sent bond prices falling.
Market Sentiment
I was shocked to learn that despite the market rising for a 5th week in a row, the CNN Fear and Greed Index (https://www.cnn.com/markets/fear-and-greed) remained flat at 74, one point below Extreme Greed. Nothing changed… at all. The stock market and bond market remain in strong bullish rallies propped up by greedy market momentum, while options traders remain concerned and continue to hold their puts in case of a possible pull-back in the market.
In another sign options traders are bearish, the VIX actually rose last week, closing at 20.46, which officially puts the VIX in bearish territory. It is very unusual to see options traders so bearish when the markets are rallying. Investors should remain cautious that the rally is weak and susceptible to rapid sell-offs should any bad news spook investors.
Technical Analysis
With another week of gains in the book, the markets are now officially 100% bullish. Amazingly, despite 5 weeks in a row of gains, the daily charts aren’t even showing signs of being overbought. In fact, based upon the fact that the MACD just turned bullish on Friday for the DOW and S&P 500, we could be looking at a prolonged rally lasting through the end of the month.
The only resistance I’m seeing is on the NASDAQ and Russell 2000, both of which are struggling to get above their respective Fibonacci Retracement levels from the 2022 bear market. But the DOW and S&P 500 remain strong with no resistance in sight.
Like the daily charts, the weekly charts also turned 100% bullish last week. The main difference between the daily and weekly charts though is that I am seeing some signs of the market being over-bought on the weekly charts. While the NASDAQ and Russell 2000 don’t appear to have anything to worry about, the DOW and S&P 500 are both nearly overbought. The RSI on the DOW is now above 70. But that doesn’t mean the DOW is going to pull-back anytime soon.
The RSI also got above 70 on the DOW back in early January, and the market continued to rally for another two and half months after that. When it did eventually fall though, it fell nearly 5% and fell for three straight weeks in a row. So investors shouldn’t panic right now, but they should be cautious that a pull-back in the DOW will probably happen soon.
Economic News
There’s only one major piece of economic data being released this week, but its impact could move the markets significantly. On Thursday, the September retail sales data will be released. This is important because it gives the markets insight into the health of consumers, which make up the largest part of the economy.
And while retail sales aren’t showing any growth once inflation is taken into account, they didn’t show a large drop last month like they were expected to either. If retail sales can keep up with inflation again this month, it could cause the markets to rally higher on hopes of the Fed’s magical soft-land scenario playing out. But if retail sales come in lower than expected, it could spook the markets into fearing an upcoming recession and a possible stagflation scenario.
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
Earnings season continues this week with more banks and airlines reporting. Investors will be watching the regional bank earnings for signs of the commercial real estate crisis causing problems. They’ll also be watching airline earnings to see if consumers are still willing to spend more to fly. We’ll also get a preview into a few tech earnings with tsmc and Netflix both reporting on Thursday.
Crypto
Bitcoin continues to be stuck. It barely moved 1% last week. I continue to rate Bitcoin a hold until we see it break above or below the current resistance levels of $70,000 and $57,000 respectively.
Other Things to Know
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Stock Curry