This week’s CPI and PPI inflation data could have serious implications on the stock market. Earnings season also kicks off on Friday. One thing is certain. The data that comes out this week will either kick off a massive rally in the stock market to new all time highs, or will start the beginning of the largest sell-off we’ve seen since the 2022 bear market.
Last Week Recap
The S&P 500 and NASDAQ rallied last week, thanks in large part to mega-cap tech stocks Microsoft and Apple. Microsoft was up 4.6% on the week, while Apple was up a massive 7.5% on the week. These rallies caused the S&P 500 to rise nearly 2%, while the NASDAQ rose 3.5%. The DOW lagged behind once again, up only 0.6%, while the Russell 2000 fell 1%.
The stock market is torn right now between wanting to rise on hopes of a Fed rate cut, and wanting to fall on worries of an upcoming recession, as evidenced by last week’s rising unemployment rate and falling full-time jobs numbers. Investors should be aware that the market always tops out within a few months before or after the Federal Reserve does their first rate cut, as the market shifts from hopes that lower rates will help stocks, to worries that the worsening economy will cause a recession that will hurt stocks.
Market Sentiment
The CNN Fear and Greed Index (https://www.cnn.com/markets/fear-and-greed) rose to 54 last week, closing in the Neutral stage once again. This was mainly due to the S&P 500 rising, and options traders getting bullish over hopes of a Fed rate cut. The individual stock market indicators remain the same however, with Market Momentum in Extreme Greed, while Stock Price Strength and Stock Price Breadth are both in Extreme Fear.
The VIX finished the week flat, up just 0.3%. The VIX finished the week at 12.48, deep in bullish territory. This corresponds with the CNN Fear and Greed Index options portion, which shows options traders are bullish. Ultimately it won’t matter though, because this week’s CPI data and earnings reports will negate any market sentiment from last week.
Technical Analysis
Once again we have a very mixed market. The tech heavy S&P 500 and NASDAQ are both 100% bullish, although the new worry is the fact that they are both overbought, with RSI values of 76 on both indices. The DOW is also 100% bullish, but not overbought like the S&P 500 and NASDAQ are. The Russell 2000 is the lone outlier. It is 60% bearish, with bearish candles, a neutral MACD, and a neutral RSI. This lines up with the CNN Fear and Greed index, which shows the rally continues to be quite narrow, and limited mostly to the mega-cap tech stocks.
Overall though, the technicals won’t matter after Tuesday. While the market will most likely rise on Monday and Tuesday thanks to continued bullishness from last week, Thursday’s CPI inflation report will determine where the market goes from there. And Friday’s earnings will give an indication where the market will be headed next week.
The weekly technicals are almost identical to the daily technicals. The S&P 500 and NASDAQ are both 100% bullish, and also overbought, with RSI values of 77 and 75, respectively. The DOW is mixed, with bullish candles, a bullish RSI, and a bearish MACD. The Russel 2000 has mildly bearish candles, a bearish MACD, and a neutral RSI.
While these technicals won’t help swing traders determine the future of the stock market thanks to the news we have coming out this week, they do give some indication that any pull-back in the market might be a little more severe than normal, due to the overbought situation right now. On the other hand, there’s nothing in the technicals to indicate a pull-back is likely. So if the data this week is bullish, the market can easily continue to hit new all time highs.
Economic News
Last week’s jobs numbers were not good. And while that caused the market to rise on hopes of a Fed rate cut, it also increased worries that a recession is on the horizon. This week’s economic data will have an even larger impact.
If the inflation data comes in lower than expected, that will confirm the market’s belief that the Fed will cut interest rates in September, and the market will more than likely rally. On the other hand, if the CPI inflation data comes in higher than expected, that will cause worries of stagflation to set in, lowering the odds that the Federal Reserve will lower interest rates as soon as the market is predicting, and will most likely cause a significant market sell-off.
The CPI inflation data for June is being released Thursday at 8:30am EST. Expectations are mixed. While core CPI is expected to come in the same as last month, headline month-over-month inflation is expected to increase, while headline year-over-year inflation is expected to have fallen.
The PPI inflation data being released on Friday however will tell a bigger picture of where long term inflation might go in the future. The PPI data on Friday is expected to show an increase in inflation. That increase will most likely show up in future CPI inflation data reports. This is being driven by high shipping costs, which I talked about in Sunday night’s video here: https://www.youtube.com/watch?v=eYF4LoBBnvM&list=UULFxFRGG-_23Kqxe0YexDc1eg.
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 starts again on Friday, with a flurry of earnings reports from the largest banks, including JP Morgan, Wells Fargo, Citibank, and more. We’ll also get some early earnings on Thursday from Pepsico, Delta, and Conagra.
For the next two months, earnings, and especially the forward guidance from those earnings reports, are what will really move the markets. This is especially important given how traders are still trying to decide if the slowing economy, and corresponding lower interest rate hopes, are good for stocks or not.
Crypto
Bitcoin is crashing. Bitcoin fell below my stop-loss price of $56,000. This could be entirely due to the fact that Mt. Gox bitcoin holders are finally getting their Bitcoin back after 10 years of it being locked up. Mt. Gox participants are most likely selling their Bitcoin right now, and taking massive profits on the rally in Bitcoin over the past 10 years.
While the selling pressure will most likely continue for the next two months or so, I would expect to see a bottom in Bitcoin around September, followed by dip buying, and an eventually rally, possibly to new all time highs. Bitcoin investors will need to be patient right now.
Dip buying appears to be the correct approach at the current time, due to the reasons for Bitcoin dropping having to do with a one-time, temporary, event that is having short-term downward pressure on the price. Buyers of Bitcoin over the next two months will most likely see massive profits later this year and next year when Bitcoin bottoms out and starts going back up again.
We are still about 3 months away from a historical rally on Bitcoin, so this timing lines up perfectly with the expected end of the Mt. Gox selling pressure.
Other Things to Know
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Wishing you the best of success trading this week,
Stock Curry