How will stocks respond to President Biden stepping down? And how will this week’s earnings from Alphabet, Tesla, and Chipotle move the market? Further, what kind of impact will Q2 GDP have on the market? Let’s discuss some possibilities, because this week is going to be a doozy.
There will be a lot of opportunities for day traders to make massive profits this week, but swing traders might want to sit this week out. On the other hand, earnings could provide incredible dip buying opportunities for long term investors. Two of the stocks I talked about in last night’s video are reporting earnings this week (Verizon and Texas Roadhouse). Make sure you watch that video here. It’s one of the most important videos I’ve ever recorded.
Last Week Recap
The stock market saw a significant sell-off last week as company earnings came in worse than expected, and former President Trump (who is currently the most likely winner of the next Presidential election) warned Jerome Powell not to cut interest rates before the election. Why should Jerome Powell listen? Because Trump could fire him if he doesn’t. The market didn’t like that, and it sold off significantly last week.
The S&P 500 fell nearly 2% and the NASDAQ fell nearly 4%. But thanks to some gains early in the week, the DOW eked out a 0.7% rise, and the Russell 2000 eked out a 1.7% rise. That was despite a more than 2% drop in the DOW on Thursday and Friday, and a 3.5% drop in the Russell 2000 from Wednesday through Friday.
With the sell-off at the end of last week, it sets the market up for a bearish week this week. But don’t pay too much attention to the technicals right now, because there are major earnings and economic news will have a much larger impact on the stock market this week.
Market Sentiment
The CNN Fear and Greed Index (https://www.cnn.com/markets/fear-and-greed) finished last week in the Neutral stage at 49, down 6 points from the week prior. For over a month now, bulls and bears have been fighting for control, with no clear winner. This is further evidence that we remain in the distribution stage as bulls start to lose their nearly 18 month control over the stock market, and bears rally to generate that long overdue pull-back to fix the overbought situation the stock market has been in since January.
With last week’s end-of-week sell-off, the VIX skyrocketed to 16.52. That is the highest close since March. It moves the VIX out of bullish territory and into neutral territory for the first time in over 3 months. The last time the VIX was in bearish territory though was all the way back in October of 2023.
Usually when the VIX rises like it did last week, we’ll see the VIX continue to rise for the next 2 weeks in a row as the market sell-off continues. The VIX is indicating a slight pull-back in the overall market of less than 10% from highs. So investors should be wary of a possible continuation to last week’s bearishness that might last for another 2 weeks.
After that though, the VIX is indicating the market pull-back will be over, and the market rally will continue. So investors will most likely benefit from trying to find some dip-buying opportunities over the next 2 weeks.
Technical Analysis
The daily technicals continue to be very mixed, depending upon which index you’re looking at. The DOW and Russell 2000 continue to be 100% bullish, while the S&P 500 and NASDAQ are 90% bearish. This is a clear indicator that sector rotation is underway. Investors are selling off their mega-cap tech stocks, and moving their money into the rest of the stock market. Based upon the VIX, I would guess this trend will continue for at least another two weeks.
Ever since January, mega-cap tech stocks have been overbought and overvalued, while the rest of the stocks in the stock market have been underbought and undervalued. This sector rotation was inevitable, and now it’s happening. So we’ll most likely see the S&P 500 and NASDAQ continue to decline, while we see the DOW and Russell 2000 continue to rise.
The weekly technicals on the other hand have almost all turned 100% bullish. The DOW is the only laggard, with the MACD not quite bullish yet, and last week’s candle forming an inverted hammer, which is bearish. While the S&P 500 and NASDAQ both fell last week, the weekly charts still look 100% bullish, with last week’s candle forming just a normal weekly dip.
The bullish weekly charts further my belief that the pull-back in the S&P 500 and NASDAQ will only last another week or two, and then these indexes will continue to rise to new all-time highs.
Economic News
Don’t ignore this week’s economic news, because it’s going to have a major impact on the stock market. News of President Biden dropping out of the race sent futures higher overnight, but that bump might only be temporary.
On Thursday, Q2 GDP is being released, and the market reaction will most likely be the opposite of what you might expect. A lower than expected GDP release will most likely cause the market to rally as the stock market bets on hopes of Fed Rate cuts. On the other hand, a higher than expected GDP release will most likely cause a stock market sell-off, as investors fear interest rates will remain higher for longer. The Federal Reserve is now more focused on the economy rather than inflation, so this week’s Q2 GDP release will be a big market mover.
In addition, we also have the June PCE being released on Friday. It is expected to show a decrease in inflation for both headline and core PCE. Any release higher than expected however, could cause the market to sell-off. On the other hand, any release lower than expected could cause the market to rally.
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 is in full swing, with some major companies reporting this week. Major mega-cap tech stocks including Tesla and Alphabet are both reporting Tuesday after the bell. Those two earnings are going to have a significant impact on the S&P 500 and NASDAQ on Wednesday. In addition, Chipotle and Ford both report earnings on Wednesday, while American Airlines reports on Thursday.
Crypto
Bitcoin had a major recovery over the past two weeks. After falling below my stop loss, it successfully bounced off of the 300 day EMA. Bitcoin is back on track for a bullish run higher, but now faces major resistance at the $69,000 level. This week will be crucial to see if Bitcoin is able to continue the rally it started two weeks ago, or if this week will be the end of the road. I would be taking profits on any crypto I purchased over the past two weeks, and just waiting on the sidelines to see what happens next.
Other Things to Know
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Wishing you the best of success trading this week,
Stock Curry