Earnings continue with more AI companies reporting. Important inflation data is being released also, as Fed members speak about interest rates. This is going to be a jam packed week, so get ready for a lot of volatility, and some incredible trading opportunities!
Last Week Recap
Nvidia reported earnings last week, and while they did beat earnings expectations as expected, they also forecast a much better than expected Q1. The incredible earnings, combined with continued AI hype, sent Nvidia skyrocketing to new all time highs. The rest of the stock market followed, with the DOW, S&P 500, and NASDAQ all hitting new all time highs last week.
But Friday unfortunately saw the rally fade, with the NASDAQ down a quarter of a percent, and all 4 major indices in the red after hours. Despite Friday’s pause in the rally, the markets still finished the week deep in the green.
Investors should watch out for AI hype starting to fade though, as SMCI fell over 11% on Friday. SMCI reached a high of $1,077.87 two Fridays ago, but then closed last Friday at only $860.01. And some stocks, such as Apple and Tesla, gave back their Thursday gains on Friday.
Market Sentiment
The CNN Fear and Greed Index (https://www.cnn.com/markets/fear-and-greed) was mostly flat last week, rising 1 point to 78, and remaining in the Extreme Greed stage. Considering how much the stock market rose last week, you would have expected the Fear and Greed Index to have risen more, but it was actually the VIX that held back the Fear and Greed Index, and that is really telling.
The VIX was only down 3.4% last week, despite last week’s rally. Although stock investors remain very bullish, options traders remain cautious. The VIX is below 15, which is clearly bullish. But the fact that the VIX only fell 3.4% last week means options traders are keeping their put options open as a hedge against a possible downturn. Options traders are clearly concerned that the bullish momentum we’ve seen over the past 4 months might be coming to an end.
Technical Analysis
The daily technicals rebounded, and are now 100% bullish on all 4 major indices. Even the Russell 2000 has joined the bull party. Outside of perhaps a 1 or 2 day drop to fix a mild overbought situation on the candles, the market appears ready to continue the bull run, and reach even higher highs this week.
The weekly charts remain 100% bullish, and also extremely overbought. Any number higher than 70 on the RSI is an indication that the market is overbought and due for a pull-back. The weekly RSI on the DOW reached nearly 78, the weekly RSI on the S&P 500 is at 76, and the weekly RSI on the NASDAQ is at 72. This indicates the market remains due for a pull-back. And the longer the market goes without a pull-back, the larger an eventually pull-back will be.
If you want to join options traders and buy put options as a hedge against a possible pull-back, you can consider the NASDAQ which is already starting to show some signs of weakness, or you can consider the DOW and S&P which both have much further to fall to correct than the NASDAQ does.
Economic News
This a big week, full of economic news. On Tuesday we get January’s durable goods order, which are expected to show a contraction, which could be a very early sign of a recession starting in Q1 or Q2 of this year. And on Wednesday we get the Q4 GDP numbers, which are expected to come in flat over Q3.
Thursday and Friday bring the major market movers. On Thursday, the PCE inflation data is being released. PCE is the official inflation data the Federal Reserve uses to track inflation in the United States. After a much higher than expected CPI and PPI earlier this month, investors have increased their expectations for PCE, and now expect month over month PCE to have doubled.
Later in the day on Thursday and Friday we will hear from numerous Federal Reserve members. This will be the market’s first insight into how the Federal Reserve plans to react to the PCE data. While the market is no longer expecting a rate cut in March, the big question is “What will the Federal Reserve do in May?” We might get some answers to that question on Thursday and 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
This is another big week for earnings, especially Wednesday after the close. All of the mega-cap tech stocks have already reported. Now we get into the rest of the DOW stocks, and we also start to hear from small cap stocks. This week will start to have a major impact on the Russell 2000.
Monday after the close we hear from Unity and Zoom. Then Tuesday before the open we’ll get earnings from Norwegian Cruise Line, AutoZone, and Lowes. Wednesday before the open we’ll get earnings from Baidu. Then Wednesday after the close we get earnings from Marathon Digital, Snowflake, Salesforce, AMC, and C3.ai. We wrap up the week on Friday with earnings from Plug and Fubo.
Other Things to Know
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Wishing you the best of success trading this week,
Stock Curry