The stock market gave a huge warning to investors last week, with the worst performance in over a year. The S&P 500 had it’s first close below the 21 day EMA in over 5 months. The DOW had it’s worst day in over 6 months. And the DOW also had it’s worst 4 day performance in over a year.
It’s clear that the market momentum we’ve seen over the past 5 months is fading, and bears are starting to take control. But whether or not the market will continue to rise, or if the rally is over, will depend upon the news coming out this week.
Last Week Recap
The stock market had it’s worst week in over 5 months last week, with all 4 major indices recording losses on the week. The DOW and Russell 2000 both fell over 2% last week, while the S&P 500 and NASDAQ both fell just shy of 1% last week.
It was the culmination of better than expected jobs data that caused the market to be fearful that the Federal Reserve might do fewer than 3 rate cuts this year, as well as multiple Federal Reserve members admitting that they only see one or two rate cuts this year, instead of the 3 that the Federal Reserve predicted at their last meeting.
Also causing the market to fall were earnings from companies such as Nike and Darden that forecast significant slowdowns in earnings growth over the next few quarters, as well as a decline in profits. Ulta Beauty also warned of a significant slowdown in consumer spending at their stores.
If the economy slows down too much, it could cause the Federal Reserve to do the rate cuts the market is hoping for, but at the cost of a recession starting. The end result will be a decrease in stock prices, not a continued rally.
Market Sentiment
The CNN Fear and Greed Index (https://www.cnn.com/markets/fear-and-greed) fell significantly last week, even reaching Neutral on Thursday. It did recover back to the Greed stage by Friday though. This is the first dip down to Neutral we’ve seen since the market sell-off in October 2023.
Investors are clearly becoming less bullish and more bearish. Most notably, the Market Volatility section of the Fear and Greed index hit Extreme Fear, indicating options traders are starting to load up on put options in expectations of a decline in the stock market.
The VIX rose 23% last week, to close at 16.03. This is the first weekly close above 15 since the stock market sell-off in October 2023. A close above 15 brings the VIX out of bullish territory, and into neutral territory. A close above 20 would be bearish. SPX options traders are loading up on SPX put options in anticipation of a significant decline in the stock market over the next month.
Technical Analysis
The daily technicals are the most bearish they’ve been in over 5 months, but still aren’t significantly bearish. The market is still holding on to hope that it can recover from last week’s sell-off and continue higher. While the candles and MACD are all bearish on all 4 major indexes, the RSI is at neutral. Also, the 10 and 21 EMA lines have not yet formed a death cross.
If the market can trade flat this week, or go up, the market has a good chance to recover from last week’s sell-off and continue higher. But if the market falls this week, the technicals will turn 100% bearish, and the market will most likely continue to fall over the next few weeks.
While the weekly technicals remain 100% bullish, they are on the edge of starting to show some bearish indicators. The MACD on all four major indexes is on the cusp of forming a death cross. And the NASDAQ did in fact form a death cross on the MACD last week. All other indicators remain 100% bullish though.
Right now, any downturn we get in the market appears like it will be short lived. Not unless we get another 2 or 3 weeks in a row of bearishness will the weekly charts turn bearish and start to indicate a prolonged downturn in the market. So far, the weekly charts are only indicating a pause in the rally, but not a downturn yet.
Economic News
March inflation data is being released this week, and after 4 months of increasing month-over-month inflation, investors are hoping for month-over-month inflation to subside this month. Expectations are for a slight drop in CPI, and a large drop in PPI. The CPI, Consumer Price Index, is being released on Wednesday, and the PPI, Producer Price Index, is being released on Thursday.
We also need to watch out for more Federal Reserve members speaking this week. Last week, the Fed members caused the market to sell-off each time they spoke. It’s possible that this week could see more of the same.
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 on Friday, with the biggest banks reporting. Friday before the open, Chase, Wells Fargo, BlackRock, Citi, and State Street all report. The banks give us the clearest insight into the financial health of consumers, including consumer savings and spending habits. Some companies over the past few weeks reported a slowdown in consumer spending. Will the banks concur?
Other earnings to watch out for this week include Tilray on Tuesday and Delta on Wednesday.
Crypto
Bitcoin continues to struggle to get above $70,000. Bitcoin has been consolidating for the past month now. Usually consolidation eventually results in a massive rally. So I’ve been buying Bitcoin as well as some alt-coins to take advantage of a future rally I see happening.
Just keep in mind that the halving is expected to occur in about 2 weeks, and that will cause significant differences to the price of crypto. Bitcoin usually trades flat for about 6 months after a halving, before going on a massive rally.
So I believe now is a great time to be buying crypto before a future rally starts. If you want up to $50 in free crypto, just use my referral code to open an account on Crypto.com at https://weprofit.io/platforms (scroll to the bottom for the Crypto.com referral code).
Other Things to Know
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Wishing you the best of success trading this week,
Stock Curry