After over 2 months of my family being sick with multiple illnesses, we are finally getting better. That means the weekly newsletters are back!
And what better week to get back to it than the week Nvidia reports earnings? Nvidia’s earnings are going to have a huge impact on the stock market this week as NVDA makes up 4% of the S&P 500 and 5% of the Nasdaq. Plus, wherever NVDA goes, so goes the Magnificent 7, which in turn controls the stock market.
I gave a full earnings preview in today’s video, so make sure to watch it for an in-depth analysis of NVDA stock: https://www.youtube.com/watch?v=aznImAZQscM&list=UULFxFRGG-_23Kqxe0YexDc1eg.
Last Week Recap
Last week’s producer price index came in much worse than expected, but the market barely reacted. After seeing the market initially fall, but then rally post Fed meeting, and again post higher than expected CPI, I suppose the reaction to PPI was to be expected. Still, eventually the stock market will have to correct to re-price fewer than expected rate cuts this year. For now though, the market continues to fight the Fed, and it appears to be working – for now.
Friday also saw an interesting sell-off of AI chip stocks. Most notably, SMCI fell 20% on Friday, for a daily loss of over $200. Other chip stocks also fell, with AI falling over 4%, ARM falling 4%, and AMD falling nearly 2%. Could this be the top of the bubble for AI chip stocks? If Friday’s sell-off continues, it could be. And NVDA earnings could be just the catalyst needed to crash the stock market.
Technically, the stock market also formed a hanging man hammer candle last week, which indicates a reversal to the downside 60% of the time. If you’d like to learn candlestick patterns, you can download my candlestick pattern cheat sheet here: https://shop.weprofit.io/products/candlestick-patterns-cheat-sheet.
Market Sentiment
The CNN Fear and Greed Index (https://www.cnn.com/markets/fear-and-greed) fell slightly last week from 79 down to 77, but still remains in the Extreme Greed stage. The stock market will often top out once the Extreme Greed stage is reached, but timing that is nearly impossible. Investors should be weary that a correction is coming soon, but should avoid trying to time the start of the correction.
The VIX spiked as high as 17.94 last week, but ultimately closed at 14.24. While it was up 10% on the week, which is a clear indication options traders are starting to hedge against a downturn in the market, it was still deep in bullish territory. The VIX won’t indicate bearishness until it crosses above 20. Any number between 15 – 20 is neutral and gives no clear direction.
Technical Analysis
The daily technicals are starting to show some mild bearishness on the DOW, S&P, and Nasdaq. The MACD has formed a death cross on all 3 indices, although the candles remain extremely bullish, and the RSI remains above 50, which is also bullish. This could either be the sign of a top in the market, or just a very mild pull-back before we continue higher. The market isn’t giving any clear indication of a correction yet.
Most interestingly, the Russell 2000 is the most bullish of the indices. This could indicate a sector rotation out of the Magnificent 7 stocks, and into the rest of the stock market, including small caps. Should we get a rotation instead of a correction, we could see the stock market fall while most stocks in the stock market rise. This would be the opposite of what we’ve seen since October of 2022, where most stock have been trading flat or falling, while the market indices rally due to the Magnificent 7 rallying.
The weekly charts remain 100% bullish, but as I pointed out earlier, have formed a hanging man hammer candle, which is a bearish reversal indicator. This is a sign that the market might have topped out last week, and finally be ready for that correction that’s long overdue, especially since the markets remain extremely overbought on the weekly charts.
But we don’t need a significant drop in the stock market to fix the overbought state we’re in. A drop of 3% to 7% is all that’s needed. So don’t expect another 2022 style drop. There’s nothing in the economy right now to indicate that’s going to happen.
Economic News
There’s no major economic news coming out this week, but there are quite a few Fed speakers. So far the market has ignored the Federal Reserve’s indication that they will significantly reduce the number of rate cuts the market is expecting, but that could change at any time. So be weary of the Fed speakers this week, because at any moment the market could decide it’s done fighting the Fed, and could drop.
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 week finishes the major tech earnings, and starts retail earnings. Tech earnings wrap up this week with Nvidia, Rivian, Lucid, and Block reporting. This week also starts retail earnings with Walmart, Home Depot, Etsy, and more. The DOW will be impacted mostly on Tuesday, while the NASDAQ and S&P will be impacted mostly on Thursday.
Other Things to Know
I made over $12,000 last week trading stocks, including over $6,000 on SPX options on Friday. If you’d like to know everything I buy and sell, and you’d like to learn from me and copy my trades, make sure to join me in my discord at https://weprofit.io/discord.
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Wishing you the best of success trading this week,
Stock Curry