Jobs data will be the biggest market mover this week, but watch out for the rally in Bitcoin which could also move the markets. We’re also getting earnings from small caps this week, which could provide a much-needed boost to the Russell 2000.
Last Week Recap
Last week saw a major mix in earnings, with some stocks like Snowflake and Marathon Digital missing earnings and crashing, while other stocks like C3.ai and Celsius Holdings beating earnings expectations and rallying. This is pretty typical for earnings season, and just the latest example of how it’s so hard to predict earnings.
Last week’s inflation data, the January PCE, or Personal Consumption Expenditures Index, came in-line with expectations. Those expectations had been raised after the hotter than expected CPI and PPI data earlier in the month. Even though PCE came in-line with expectations, it was still the largest increase in inflation in over a year.
And Bitcoin rallied 23% to a new 52 week high last week, hitting $64,000 – just 7.5% below the all time high. If Bitcoin continues the rally this week, it should hit a new all-time high within a few days. Should that happen, you can expect crypto hype to re-enter the market, just as stocks such as CLSK, RIOT, MARA, COIN, and MSTR have been rallying as well.
Because of the new hype around crypto, I included a new crypto analysis section in this newsletter, which you can find near the end of the newsletter.
Market Sentiment
The CNN Fear and Greed Index (https://www.cnn.com/markets/fear-and-greed) was mostly flat last week, falling 1 point to 77, and remaining in the Extreme Greed stage. It remains very interesting to me that the stock market continues to rise, but the Fear and Greed index continues to remain flat. I remain concerned that the stock market is currently in a distribution phase, and about to start a correction soon.
The VIX fell 4.6% last week, finishing the week at 13.11, and finishing deep in bullish territory. Keep in mind that that VIX has very strong support at 12.00. For this reason, the VIX is indicating continued bullishness over the next week or two, but cautioning that the bullishness may be topping out soon.
Technical Analysis
The daily technicals remain 100% bullish on all 4 major indices. There are some signs of concern on the DOW and S&P 500 however. Both of those indexes are now above 70 on the daily RSI, indicating they are over-bought and due for a pull-back.
The trend on all indices is continued bullishness though, and now it’s time to look at the all important 161.8% Fibonacci Retracement level. This is the upper level where stocks, or in this case markets, tend to reach after bouncing off of pull-backs. The DOW’s 161.8% Fibonacci Retracement line is just 3.8% above Friday’s closing price. The S&P 500’s line is just 5.3% above Friday’s closing price. And the NASDAQ’s line is 11.7% above Friday’s closing price.
So based upon the 161.8% Fibonacci Retracement level, we’ll probably see stocks continue to rise for a few more weeks before pulling back. My guess is that the markets will continue to rise through April, before pulling back in May. This would line up perfectly with historical trends, which say, “Sell in May and Go Away.”
The weekly charts remain 100% bullish, and also extremely overbought. The RSIs on the DOW and S&P 500 are both at 78, while the RSI on the NASDAQ is at 74. The weekly indices have been screaming for a pull-back for a while now. The longer the market goes without pulling back, the larger an eventual pull-back will be.
One note of concern is that the DOW finished the week with a doji candle. While not a strong indication of the market topping out and starting to fall, it is just the latest sign that we might be in a distribution stage, with the market starting to top out. One interesting note is the monthly DOW chart, which is now indicating the need for a 7% pull-back just to get back down to the 10 month EMA. Should the DOW fall all the way down to the 50 month EMA (a major support level for the DOW), we’re looking at a 19% drop in the DOW. That would still put the DOW in correction territory, and not bear market territory though. So while another bear market seems nearly impossible at this point, a correction of between 7% to 19% seems very likely.
Only the Russell 2000 has an RSI below 70, with that RSI at 65.The Russell 2000 is also the only index that has not yet hit a new 52 week high. The Russell 2000 has only recovered half of its losses from 2022, and just 4 months ago was trading right at the October 2022 lows. The Russell 2000 is still down over 13% from all-time highs. It’s the clearest indication of how narrow this rally has been, and how just a few stocks have brought up the entire stock market, while the majority of the stock market continues to struggle.
Economic News
The biggest market mover this week will be Wednesday’s and Friday’s jobs numbers. Expectations are mixed, indicating economists have no idea how the jobs numbers are going to come in. This leaves room for a lot of surprise in the markets, which could cause major volatility, and set up some incredible trading opportunities.
There are also a few Fed members speaking this week, so watch out for volatility throughout the week should any Fed members say anything unexpected.
Factory orders are also being released Tuesday shortly after the market opens, and they’re expected to show a major decline. Should factory orders come in even worse that expected, that could cause a temporary drop in the markets on Tuesday.
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 is another big week for small cap companies and the Russell 2000. As companies report better than expected earnings, this should help push the Russell 2000 up. The most notable earnings this week for retail traders include NIO and Target Tuesday before the open, Crowdstrike and Chargepoint Tuesday after the close, and JD and Abercrombie Wednesday before the open.
Crypto
Bitcoin hit a new 52 week high again on Sunday, just moments before this newsletter was sent out. At Bitcoin’s current pace, it could reach a new all-time high within a few days. Based upon the Fibonacci Retracement levels, Bitcoin should rise to $102,000.
The Bitcoin halving is expected to take place on April 18, 2024 – just 45 days from now. That date could change depending upon how much Bitcoin is mined between now and April 18th. Historically, Bitcoin rallies going into the halving, and then sells off for about 6 months after the halving. This is definitely a buy the hype, sell the news event.
As a result, I am loading up on April call options on crypto stocks, expecting those crypto stocks to rally as Bitcoin rallies. The stocks I’m buying call options on include CLSK, RIOT, MARA, and COIN.
Other Things to Know
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Wishing you the best of success trading this week,
Stock Curry