Stock Market Prep – FOMC Meeting + CPI Inflation Data

Volatility will be in abundance this week as investors worry about the double whammy of the FOMC Meeting and the CPI Inflation Data both coming out on Wednesday.

If you want to understand how the government manipulates inflation data and why we need high inflation to continue, watch my latest video here: https://www.youtube.com/watch?v=cFCbUwv-ark&list=UULFxFRGG-_23Kqxe0YexDc1eg.

There’s also a massive 40% OFF promo running on the Stock Dads discord for the first 200 people to sign up, so check the bottom of this newsletter for that information.

Last Week Recap

The markets were mixed last week. While the DOW was flat, the Russell 2000 fell by more than 2%. Meanwhile, the NASDAQ rose almost 3% and brought the S&P 500 up 1% with it. The main reason the NASDAQ rose was because of Nvidia. Nvidia was up over 10% on the week, and the other mega-cap tech stocks rose along with Nvidia, up between 2% and 4% each.

This means the market rise continues to be limited to a few mega-cap tech stocks. While most stocks in the stock market fell (indicated by the Russell 2000 down over 2%), a few mega-cap tech stocks rose, single-handedly bringing up the NASDAQ and S&P 500. Narrow rallies like this are dangerous though, as a reversal in the few stocks that are rising can quickly bring down the entire stock market.

Last week’s jobs numbers came in better than expected, indicating a stronger than expected economy. The market took that as bad for stocks, because the Federal Reserve is less likely to cut interest rates while the economy is strong. Futures markets are now pricing in no rate cuts this year, with the exception of a possible rate cut in December. That news kept the DOW in check last week, and helped push the Russell 2000 down.

Market Sentiment

With last week’s rally being so narrow, the CNN Fear and Greed Index (https://www.cnn.com/markets/fear-and-greed) fell down to 45 last week. While still in the Neutral stage, it’s just 1 point above Fear. Some people might be confused why the CNN Fear and Greed index is so close to Fear with the NASDAQ and S&P rising. The reason is because despite the very narrow rally in mega-cap tech stocks, the majority of the stock market fell last week.

While Market Momentum is still in the Greed stage thanks to the rise in mega-cap tech stocks, Stock Price Strength and Stock Price Breadth are both in Extreme Fear due the majority of the stocks in the stock market falling. That said, options traders remain neutral for now, although I would expect the VIX to spike on Tuesday prior to Wednesday’s CPI data and FOMC meeting. That might open up a short term trade opportunity to go long on VIX calls, and then sell them Tuesday before the close.

Last week the VIX fell 5% to close at 12.22, near the historical low, and indicating extreme bullishness. I would expect that drop to be temporary though, as I do expect the VIX to spike up on Monday and Tuesday, before falling again on Wednesday. However, the VIX’s continued bouncing off 15 and falling back down, shows options traders are not expecting a major pull-back in the stock market any time soon. This is in direct conflict with stock traders who are selling stocks, although since the VIX is based upon S&P 500 options, it doesn’t surprise me that options traders see a drop in the S&P 500 as unlikely, so long as mega-cap tech stocks continue to rise.

Overall, I think the Fear and Greed index is correct… Neutral. No clear indication up or down when it comes to market sentiment.

Technical Analysis

The daily technicals continue to be very mixed. After last week’s drop, the Russell 2000 is 100% bearish. On the other hand, the NASDAQ is 100% bullish. The DOW and S&P 500 are caught in the middle, with both being neutral, although the S&P 500 is slightly bullish, and the DOW is slightly bearish.

Given that the technicals are not giving any clear direction, it might be best to pay attention to the economic news, as that will most likely set a clear market direction starting on Thursday.

The weekly technicals are quite neutral as well. There’s some bullishness on the NASDAQ and some bearishness on the Russell 2000, but overall it’s quite neutral. Again, I think we’ll need to see how this week’s economic news plays out before we’ll know which direction this market wants to go.

Economic News

With all else being neutral, this week’s economic news is going to determine the direction of the stock market for the next few weeks.

Wednesday is a major day for economic news. Not only do we have CPI inflation data coming out an hour before the market opens, we also have the June FOMC meeting. Inflation is expected to be somewhere between down and flat, although estimates are varied after last month’s CPI came in lower than expected. The Federal Reserve is widely expected to keep interest rates the same at this month’s FOMC meeting, but it’ll be Jerome Powell’s words during the press conference that really move the markets. The press conference starts at 2:30pm Eastern.

Thursday we also get the PPI, Producer Price Index, inflation data. But the market’s reaction to Wednesday’s FOMC meeting is expected to overshadow the PPI data.

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

With earnings season officially over, we’ll just have a few companies reporting each week. This week, we look forward to Fuelcell Energy on Monday, Oracle on Tuesday, Dave & Busters on Wednesday, and Adobe and RH on Thursday.

Crypto

I really thought Bitcoin was going to break above the long-term resistance level of $72,000 and go higher last week, but it failed to do so and fell on Friday. The good news is that the $69,500 support level held over the weekend, so we’ll get another chance at it this week. I’ve started to buy a few crypto mining stocks as well as Coinbase in anticipation of a possible breakout to the upside on Bitcoin soon.

Other Things to Know