AMD, Amazon, Apple, Alphabet, Microsoft, and Meta are all reporting earnings this week. And we can easily predict what these companies will report based upon what some other companies, such as TSMC and Intel, recently reported. All of my earnings predictions are included in this video here: https://www.youtube.com/watch?v=igZ7WDL4lxw&list=UULFxFRGG-_23Kqxe0YexDc1eg.
Now that you’ve watched that video, let me show you how the current technical analysis and market psychology will play into earnings this week.
Last Week Recap
Just like this week, the big focus last week was earnings. Netflix, Tesla, and Intel all reported earnings last week. Netflix kicked off last week with a massive earnings beat and great forward guidance. Netflix’s subscriber count in particular blew expectations out of the water. As a result, Netflix jumped 18% on the week, making anyone holding a call option a ton of money.
Things were not so great for Tesla however. TSLA was already dropping going into earnings, and Tesla’s bad earnings report just made things worse. Tesla reported both revenue and profits that came in lower than analyst expectations. The profit miss, due to Tesla’s shrinking margins after lowering prices across China and Europe, was largely expected. But the revenue miss was surprising. The nail in the coffin however was Tesla saying vehicle volume growth in 2024 “may be notably lower” than last year’s growth rate. So not only are Tesla’s margins shrinking, their growth rate is slowing down too. Investors did not like that at all, and Tesla’s stock fell 12% the day they reported earnings. Despite the decline, this might be a buy the dip opportunity, as outlined in this contrarian article.
After one company reported good earnings, and one company reported bad earnings, all eyes were on Intel on Thursday. Unfortunately Intel put the nail in the coffin for AI chip stocks, as while Intel did beat analyst expectations for Q4 2023, they forecast a significant slowdown in Q1 2024. This sent not only INTC shares tumbling over 10%, but also sent AI chip stocks such as Nvidia, AMD, and ARM down as well.
Market Sentiment
With the stock market rising another 1% last week, market sentiment on the CNN Fear and Greed Index (https://www.cnn.com/markets/fear-and-greed) rose as well. The Fear and Greed index remains in the “Extreme Greed” stage, and rose 7 points to 77. Based upon market sentiment alone, there is no indication that the stock market will fall. But as Warren Buffet says, “Be fearful when others are greedy.” Whenever the Fear and Greed index hits the “Extreme Greed” stage, you can be certain a market pull-back is coming soon. And earnings this week might be just the catalyst the market needs to cool off and get back down to reality.
Despite another rise in the stock market last week, the VIX failed to fall. It’s clear options traders are buying more and more put options in expectations of a decline in the S&P 500. The VIX finished last week down just 0.3%. While still indicating bullishness overall, options traders are clearly getting concerned that the market might be topping out.
Technical Analysis
The daily technicals are getting a little indecisive. Not that I would pay attention to the technicals this week, given the impact earnings will have, but still they are interesting to look at.
The DOW remains in a weird place where the candles and RSI both indicate strong bullishness, but the MACD remains bearish. Pay attention to the weekly technicals for an indication as to which daily technical pattern will win.
The S&P and NASDAQ are in the same boat. They are both 100% bullish on the daily charts, and both overbought. They are both indicating a small pull-back for a day or two, before a longer term rally continues.
The Russell 2000 is similar to the DOW, but not quite as bullish on the RSI. While the Russell 2000 is still bullish overall, the technicals lack the bullish momentum we’re seeing from the other three indices. Overall, the Russell 2000 is more neutral than anything.
While the daily charts are failing to give a clear picture, the weekly charts are very clear. All 4 major indices, including the DOW, S&P 500, NASDAQ, and Russell 2000, are all 100% bullish. Three of the indices – the DOW, S&P 500, and NASDAQ – are overbought on the RSI and due for a pull-back.
It’s weak, but the DOW almost formed a hammer candle last week, which could indicate a reversal. Last week’s candle on the NASDAQ however is clear as day.
The NASDAQ formed a doji candle last week, and specifically an abandoned baby doji. This candlestick pattern has a 65% success rate in predicting a bearish reversal. Combined with the overbought RSI, and this candlestick pattern’s success rate rises to over 70%. That means the NASDAQ has a 70% chance of dropping this week.
But don’t go YOLO’ing into put options on the NASDAQ just yet. With 6 mega-cap tech stocks reporting earnings this week, the technicals are worthless. I wouldn’t attempt to open any options on the NASDAQ until Friday, after all of the tech companies have reported earnings.
Economic News
There’s a lot of major market-moving economic news coming out this week. While this news would normally have a major impact on the stock market, this week’s earnings might overshadow the economic news. This week’s economic news could still have a major impact on the DOW and Russell 2000 however, as both of those indices are largely insulated from the impact of big tech earnings.
On Tuesday, December’s job openings numbers are being released. Then Wednesday morning, January’s ADP private payrolls numbers are being released. And those will be followed up by the official January jobs numbers on Friday.
In addition, there is also some minor economic news that day traders will have to watch out for, including the ISM manufacturing report on Thursday, and December factory orders on Friday.
And don’t forget about the FOMC meeting taking place this week also. This is the first FOMC meeting of the year, and while the Fed is largely expected to leave rates unchanged, the real question will be what Jerome Powell says at his press conference on Wednesday. The markets had been pricing in 6 to 7 rate cuts this year, while the Federal Reserve was only pricing in 3. But after a few months of better than expected economic data, could that number drop even more? And should Jerome Powell indicate fewer rate cuts than the market is currently pricing in, will the stock market sell off in order to re-price those rate cuts? These are the questions trader must ask themselves and watch out for on Wednesday.
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 the biggest week for Q4 earnings season. 6 mega-cap tech stocks are reporting earnings this week. Microsoft, AMD, and Alphabet are all reporting earnings on Tuesday after the close, and Apple, Amazon, and Meta are all reporting earnings Thursday after the close. In addition to those behemoths, there are a number of other companies retail investors might be interested in, including SoFi, Cleveland-Cliffs, Pfizer, GM, UPS, Starbucks, Boeing, and more.
Other Things to Know
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Wishing you the best of success trading this week,
Stock Curry