Stock Market Prep – Proceed With Caution

Proceed with caution this week. Even though both stocks and crypto played out almost exactly as I predicted last week, there are no guarantees the market rebound will continue this week. There are some forces that could cause stocks to rally higher, and there are other forces that could cause a significant stock market crash. Keep reading to understand both the bullish and bearish perspectives, and trade with caution. Also, keep in mind that the stock market is OPEN on Veteran’s Day.

Market Recap

Both the stock market and crypto played out almost exactly as I had predicted last week. I predicted a 3% fall in the S&P 500 down to the 50 day EMA before a rebound, and gave a bottoming price on SPY of $661. And that’s exactly what happened. SPY bottomed on Friday at $661.21 and then rebounded to finish the day in the green. I also warned of a crash in crypto, and sure enough Bitcoin fell, dropping below $100,000 for the first time since June. I was two days off on my timing, but my price targets were perfect.

Please don’t expect perfection from me all the time though! That would be too high of a standard to live up to. As I’ve said before, I’m an analyst; I’m not Jesus.

On the economic front, the US government continues to be shut down, and that is impacting the economy. Hotels, airlines, and even Uber are warning of significant declines in revenue due to the government shutdown. Once the Senate agrees to reopen the government, we can expect a massive rally in the stock market. And that is the most bullish catalyst for the market short-term.

On the bearish side of the economic news, consumer sentiment just had the second lowest reading in history. The only other time in history it was lower was in 2020 when the entire country was shut down. And yes, consumer sentiment includes the 2008 financial crisis. It goes all the way back to 1978. If there’s any good news, it’s that most of the bearish sentiment was focused on the government shutdown eliminating pay checks and food stamps for millions.

Once the government reopens, consumer sentiment should rebound, and the stock market should rally. Still, with consumer spending being the single largest factor for the US economy and the stock market, consumer sentiment this low is a huge warning sign that earnings next quarter could be disastrous, and that could cause a crash in the stock market early next year, starting in January when the next earnings season starts.

Other economic news was also bearish, with the ISM Manufacturing Index showing contraction increasing (the slowdown in manufacturing getting worse), auto sales declining, and consumer credit card spending skyrocketing. There was some bullish economic news though including the ISM Services Index showing growth speeding up, and the ADP private payrolls numbers coming in higher than expected (although still low).

Keep in mind that with the government shutdown continuing, we still do not have any official government data, such as jobs numbers, inflation data, factory orders, GDP, the US trade deficit, wholesale inventories, or any unemployment or wage data. This is causing investors to have to guess at how the economy is really doing. Once the government reopens and we start getting official data again, we could see either a massive rally or massive crash in the stock market, depending upon what the data shows.

Market Sentiment

With the stock market selloff last week, the CNN Fear and Greed Index (https://www.cnn.com/markets/fear-and-greed) fell to Extreme Fear. That was to be expected, considering how we were already in Fear, and how most of the 7 factors that make up the Fear and Greed Index were in Extreme Fear already. The only factor that was propping up the Fear and Greed Index was Market Momentum. But Market Momentum has now fallen down to the Fear stage as well. And this is one of the reasons I’m suggesting caution this week. Market momentum has slowed down, and we’re at a bit of a cross roads here. We might rebound out of Extreme Fear and see a nice rally, or things could continue getting worse. There’s not a lot that market sentiment can tell us about what the stock market will do this week. It’s the other factors listed below that will provide more insight.

On a positive note, the VIX closed last week at 19.08. And while this is a rise from the prior week’s close of 17.44, it’s still below the 20 threshold which indicates fear among S&P 500 options traders. This means that while options traders are buying some put options on the S&P 500, they haven’t bought so many that it’s signaling fear. S&P 500 options traders remain neutral. If the VIX does rise and close above 20, that would be your sign that options traders are bearish. And any number above 30 shows extreme fear.

All of that said, do keep in mind that the VIX only considers the S&P 500 options. When we look at options contracts across the board (using put / call ratios), options traders are showing extreme fear on individual stocks. This makes sense considering how a few stocks have risen drastically, while most stocks have only risen modestly. The S&P 500 options traders are indicating that the overall modest rise in stocks over the past few months is leaving them neutral on the overall market, even though they are bearish of the handful of stocks that have risen to insane valuations (mainly the 20 largest stocks in the market).

Technical Analysis

Technical analysis on the daily charts is showing a mix of bearishness and bullishness. On one hand, indicators such as the MACD and RSI are bearish. On the other hand, the market just bounced off of major support last week and the EMA lines are still bullish. This is true for all 3 major indices, including the DOW, S&P, and NASDAQ. The Russell 2000 on the other hand is fully bearish, having formed a death cross on the EMA lines last week. So with the daily charts not giving clear direction (except for the Russell 2000), we really have to look at the weekly charts for an indication as to which way the market will go this week.

The weekly charts are in sync, with all four major indices showing continued bullishness on the candles and EMA lines, but caution on the MACD. On all four major indexes, the candles have remained above the 10 week EMA every week since May. And the MACD has been green every week since may also. But while the candles remain above the 10 week EMA lines, the MACD is getting very close to turning red. And whenever the MACD turns red, the market always falls down to at least the 21 week EMA, and sometimes lower. On SPY, the 21 week EMA is sitting around $645. SPY closed last week at $671. So if the S&P 500 drops down to the 21 week EMA, we would be looking at another 4% decline in the stock market, bringing the total decline to 7%.

While concerning, this would only be a normal pull-back, and still would not put the market in correction territory. With the MACD closing the gap and getting closer and closer to red, it looks likely that the stock market will fall another 4% over the next few weeks, before *hopefully* bottoming out for good and then rebounding, and rallying to new all time highs once again. Just keep in mind that while the S&P 500 might fall 4% over the next few weeks, there’s no telling what the market will do week to week. So just proceed with caution over the next few weeks until the pull-back is over.

Economic News

Economic news continues to be non-existent this week with the government still shutdown. And while nothing is happing on Monday or Tuesday, there are a lot of Fed speakers on Wednesday and Thursday. So look for increased volatility on those two days. Day traders might want to consider trading longer than normal on Wednesday and Thursday to take advantage of the increased volatility.

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. Last week the same story continued. Some companies performed well post-earnings, but most dropped. So be careful if you own any of the companies reporting earnings this week. While most of the major companies have already reported, we do still have some big ones this week, including Beyond Meat (the BYND stock retail is trying to short squeeze), Circle, Cisco, and Walt Disney.

Crypto

Last week I warned that Bitcoin was about to form a death cross on the MACD monthly chart (not to be confused with a death cross on the EMA lines). Every time in history that crypto has formed a death cross on the monthly MACD, it has fallen by at least 60%. In the past, whenever Bitcoin formed a death cross on the MACD, we’ve seen crypto fall for about 7 months, and then trade flat for about 6 months, before starting to rise again. That’s a total of 13 months of declining and flat movement.

The way I would play this is to short crypto (and crypto stocks) through May of 2026. Then sit on my hands for 6 months. And then start buying crypto and crypto stocks again in November of 2026. That would be the best play if this upcoming crypto winter plays out the same as the prior two crypto winters.

Other Things to Know

Multiple trading platforms continue to offer free stocks and high yields on cash. So get your free stocks while you still can at https://weprofit.io/platforms/.

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Wishing you the best of success trading this week,
Stock Curry