With inflation worries behind us, the market is now focused on earnings once again. We kick things off this week with the banks reporting on Friday. And without any other major news to scare the markets, we could see a nice rally this week prior to the Friday earnings.
Last Week Recap
The markets were shocked last week when the jobs numbers came out much better than expected. After two months in a row of much worse than expected jobs numbers, the market was bracing for another hit. Yet when the numbers were officially released, they came in with a smashing 254,000 jobs created, and the unemployment rate fell to 4.1%.
The stock market didn’t rise as much as one might expect last week given the surprise jobs numbers though. The DOW only rose 0.1%, the S&P 500 was only up 0.3%, the Nasdaq was only up 0.1%, and the Russell 2000 actually fell 0.5%. The reason is because most economists believe the September jobs numbers was a one-off, and that the numbers will correct in October. This is especially true given how many companies are doing mass layoffs right now.
Some Federal Reserve members last week also mentioned that doing a 0.5% rate cut last month was a mistake. And given the strong September jobs numbers, the chances of another 0.5% rate cut at the next Fed meeting are near zero. The market was forced to price in fewer rate cuts this year, and that is another reason the gains last week were limited.
Market Sentiment
With the stock market rising for the 4th week in a row, the CNN Fear and Greed Index (https://www.cnn.com/markets/fear-and-greed) rose as well, finishing at the top of the Greed stage, and just 1 point below Extreme Greed. Bond traders and options traders remain the hold-backs, keeping the Fear and Greed index from rising fully into Extreme Greed. Options traders are Neutral, while bond traders remain Fearful. Investors should bear these things in mind – that options traders are usually pretty good at forecasting the future, and when the Fear and Greed index reaches Extreme Greed, the market is usually about to top out and fall.
Despite the market rising slightly last week, the VIX spiked. The VIX closed at 19.21. While that is still Neutral, it is just below Bearish. Options traders remain fearful of a turnaround and subsequent fall in the market. So based upon market sentiment, investors might want to consider selling and taking profits on their short-term swing trades right now.
Technical Analysis
With the gains each week getting smaller and smaller, the market is starting to lose its bullishness. The DOW, S&P 500, and Russell 2000 all have bearish MACD indicators. But with all other indicators remaining bullish, the MACD can be mostly ignored for now. It should be watched though, as other technical indicators also becoming bearish could indicate a reversal in the markets. The most likely indicator that could turn bearish next would be a candle close below the 10 day EMA.
While the daily charts are becoming more bearish, the weekly charts are become more bullish. The weekly charts are now nearly 100% bullish, with only the Nasdaq MACD remaining bearish. Both the Nasdaq and Russell 2000 are struggling to get above their respective Fibonacci Retracement levels though, and with the daily charts turning bearish, this could be a resistance level that holds for now.
Overall, the technicals are pointing to another fairly flat week ahead, with a slight bias towards bullishness. The technicals could become worthless starting Thursday however. Watch out for major economic news coming out Thursday, and the start to earnings season on Friday, both of which will most likely work together to break the market out of this flat funk it’s been in for the past two weeks.
Economic News
With the strong September jobs report, investors are hoping the goldilocks soft-landing scenario will play out. Those hopes will be tested this week when the CPI inflation data is released on Thursday. Friday will also see the PPI inflation data be released. While headline CPI is approaching that magical 2% number, core CPI (which is what the Fed really focuses on) is expected to come in at 3.3%, still quite a bit higher than what will be needed for a soft landing.
There are also a number of Federal Reserve members speaking this week, and they’re starting to say that last month’s 0.5% rate cut was a mistake. Any more indications that rates won’t be cut as quickly as the market hoped might send the market falling. So read through the event calendars below before placing your trades this week.
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 kicks off once again with the banks reporting on Friday. JP Morgan Chase, Wells Fargo, and BlackRock will all be reporting on Friday. As always, it’s the forward guidance that really matters, so pay close attention to those earnings calls.
Crypto
Bitcoin failed to break above the $69,000 resistance level last week. It fell 6% last week, but has since recovered a little. Bitcoin is still a hold in my opinion, and I would not turn bullish on it until I can see it break above this very strong $70,000 resistance level. A breakout to a new all-time high would be super-bullish. For now though, it continues to trade in this multi-month lull.
Just keep in mind that Bitcoin normally breaks out and rallies to new all time highs around 9 months after a halving. So I would expect to see a breakout rally to new all time highs, and possibly $100,000 or more, starting in the next 1 to 3 months.
Other Things to Know
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Stock Curry