Now that earnings season has ended, the Federal Reserve will be the biggest market mover this week. But watch out for a technical correction that may have started last week. With the stock market now having gone over 4 months without a correction, a long over-due pull-back might be starting. And this week’s FOMC meeting might be the catalyst that kick-starts the correction.
Last Week Recap
February CPI and PPI inflation numbers came in higher than expected last week. With lasting inflation, and inflation now increasing for each of the past 4 months, it seems very unlikely that the Federal Reserve will lower interest rates any time soon. Normally this would have caused a market sell-off, but with AI hype remaining strong, the market managed to pull off a mostly winning week.
The NASDAQ and Russell did fall though, with the NASDAQ down 1% on the week, and the Russell 2000 down 2% on the week. This, combined with falling market sentiment, led some people to think a correction may have started last week. It’s still too early to tell if the market will in fact correct or not, but the odds are high after last week’s market action.
Market Sentiment
The CNN Fear and Greed Index (https://www.cnn.com/markets/fear-and-greed) remains in the Greed stage for the 2nd week in a row. It didn’t fall further than last week though, it mostly just remained the same. Still, this 2nd close in Greed after over a month in Extreme Greed shows investor’s extreme bullishness is waning, and the market could be starting to correct.
The VIX fell slightly last week to 14.41, but still closed at the highest level since the October 2023 sell-off. With the VIX remaining elevated, this indicates options traders are still concerned about a possible pull-back in the market. The VIX is still in the bullish stage though, so any pull-back has not yet been confirmed.
Technical Analysis
The daily technicals have now turned bearish on all 4 market indexes, with the NASDAQ and Russell being the worst offenders. The DOW and S&P are both neutral on the RSI, but bearish on the MACD. They both have candles that closed below the 10 day EMA lines, and just above the 21 day EMA lines.
But the NASDAQ and Russell 2000 are very bearish. While both have neutral RSI values, they both have bearish MACD indicators, and both have candles that closed below the 21 day EMAs. They’re not 100% bearish yet, thanks to that neutral RSI value, and the fact that the 10 and 21 EMA lines have not yet crossed, but they’re getting close. This week will be crucial to determine if a longer term correction is setting in, or if this is just a short term bounce that will reject, and see the market go back up again.
Despite the daily charts turning bearish, the weekly charts remain 100% bullish on all 4 major indices. We’ll need to see two more weeks of bearishness before the weekly charts turn bearish. With the weekly charts remaining bullish, this leads to the possibility that what happened last week might reject, and that the markets might continue higher, rather than fall into a longer term correction. In other words, the market is indecisive, and at a critical moment of truth for whether it wants to continue higher, or start it’s much awaited correction.
Economic News
After last week’s higher than expected CPI and PPI, all eyes are now on the Federal Reserve. The Federal Reserve is hosting it’s March FOMC meeting this week. And while the markets do not expect the Federal Reserve to lower interest rates at this meeting, the real question will be how many rate cuts the Federal Reserve now sees this year. Previously the Fed predicted 3 rate cuts, while the stock market priced in 6.
The real question for the stock market though, will be whether or not traders even care about what the Federal Reserve says. For the past 3 months, the market has been fighting the Fed, and it’s been working thanks to AI hype. But now with earnings season over, there’s a chance the market will pay closer attention to the Federal Reserve.
The FOMC meeting ends on Wednesday, with the updated Summary of Economic Projections showing how many rate cuts the Fed plans to do being released at 2:00pm Eastern, and Jerome Powell speaking at 2:30pm Eastern.
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 has officially ended, but there are still some big companies reporting. The companies reporting earnings this week that retail investors might be most interested in include Xpeng on Tuesday, Pinduoduo on Wednesday, and Nike on Thursday.
Crypto
Bitcoin retraced slightly from its $70,000 high it hit last week. At this point, it’s hard to say if this pull-back is temporary, or will be longer lived. On one hand, Bitcoin is holding the 21 day EMA for now, which keeps Bitcoin bullish, but on the other hand, it could probably use a slightly larger correction. Bitcoin typically follows the 10 week EMA line as support. That support line is currently at $55,000. So it’s hard to say if Bitcoin will fall to $55,000 and then continue higher, or if it will bounce and continue higher here. Either way, Bitcoin remains long term bullish.
While the crypto mining stocks have lagged behind the other crypto stocks this past week, I did go ahead and add some COIN stock and COIN calls to my portfolio last week. I am also considering some MSTR, but I would like to see that pull back to at least $1,500 before buying in.
Other Things to Know
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Wishing you the best of success trading this week,
Stock Curry