The stock market had a massive bounce off of the 200 day moving average on the S&P 500 last week, with the NASDAQ rising 4% in 2 days. This is a very strong bullish reversal signal, and indicates the stock market will restart the bull run that ended in January. But this week’s jobs data, as well as two speeches from Jerome Powell could override the technicals and cause the market to drop. Here’s everything you need to know.
Last Week Recap
After 3 weeks of selling, the stock market finally had a green week last week. But that rebound wasn’t due to any changes in the fundamentals of the stock market or the economy. Instead, the rebound was simply due to a key technical level being reached on the S&P 500, which has historically been a strong technical support level. That key support / resistance level (the 200 day moving average on the S&P) took 2 months to cross above last time, and could take another 2 months to cross below this time. Last week the technicals were more important than the fundamentals. The market started its rebound after some comments from a Fed member indicated that he might recommend a 25 basis point rate hike in March, as well as pausing at some point later this year. None of that was new or shocking in any way. In fact, Jerome Powell has been saying the same thing since November last year. But the stock market just needed a reason to follow the technicals and rally, and this “news” gave the stock market just the thing it needed. Whether last week’s rebound continues or not will depend upon what Jerome Powell says this week.
While the fear and greed index (https://www.cnn.com/markets/fear-and-greed) started the week with a sharp decline down to the lower end of the “neutral” territory, and even approached the “fear” level, Thursday’s rebound and Friday’s continuation pulled the fear and greed index back up. Still, the fear and greed index closed at the upper end of the “neutral” level, falling out of the greed / extreme greed level for the first time since last year. It’s important to note that just because the market is no longer greedy, does not mean that we will get a sell-off. The “neutral” level is just that – neutral. There is no longer any indication of future movement up or down in the stock market based upon the fear and greed index.
And shockingly, the VIX rejected the weekly golden cross on the MACD that I mentioned last week, and actually closed the week below 19. Not only did the VIX close below 19, which is a very bullish indicator, it also created a MACD death cross on the daily chart, which is another bullish indicator, and a sign that the VIX might stay low for this entire week. On the other hand, the VIX also closed at the bottom of the range in which it normally bounces, so if we do get a flip back to the downside in the market this week, the VIX could rise and cross above 20 again, indicating more bearishness in the market. If this were to happen, it would most certainly send the fear and greed index into the “fear” level, and solidly lock in bearish market sentiment once again.
Despite the daily charts showing all 4 major indices well into bearish territory in my last newsletter, last week’s massive rally on Thursday and Friday has caused some bullish indicators to show up once again. While the MACD remains bearish on the daily charts, the candles on all 4 major indices closed above all of the EMA lines, indicating strong bullishness in the stock market across the board. In addition, the RSI rose above 50 in all 4 major indices, further confirming the bullishness. But the 10 day EMA hasn’t crossed above the 21 day EMA on all of the indices, so there’s still a chance that last weeks’ bullishness on Thursday and Friday might be short lived. Right now the daily charts are about 50% bullish / 50% bearish, falling in line with the “neutral” market sentiment. That means the daily technicals are giving no clear direction on which way the stock market will trade this week.
Last week I explained how the DOW chart had becoming completely bearish, while the other indices were turning bearish, but weren’t quite 100% bearish yet. After last week’s rally, the DOW weekly chart is now only 50% bearish, with the candles back above the 21 day EMA, but still below the 10 day EMA. The MACD also remains bearish, with the RSI at neutral. All 3 of the other indices on the other hand (the S&P, NASDAQ, and RUSSEL) are all 100% BULLISH on the weekly charts. Despite the uncertainty in the market sentiment and the daily charts, the weekly charts are indicating that the stock market will continue to rise. The rate of growth might be a little bit slower though, so if you do take out any bullish positions, you might want to consider longer time frames in order for those bullish plays to work out.
This is a big week when it comes to economic news. Jerome Powell is speaking on both Tuesday and Wednesday this week, although those speeches are to the Senate, and Jerome Powell has historically been dovish when speaking to the Senate. So there’s a good chance that the market will rise as Jerome Powell speaks this week.
We also have a lot of economic data coming out this week, with the most important being the jobs data being released on Wednesday, Thursday, and Friday. Out of all of the jobs reports we’re getting this week, Friday’s jobs report will be the most important and the biggest market mover. On Friday we get the official jobs data for February. Now jobs data can be determined as bullish or bearish no matter how the data comes out. If the jobs data is strong, bulls will celebrate the possible avoidance of a recession and bears will celebrate the Fed needing to raise interest rates more. If the jobs data is weak, bulls will celebrate the Fed doing less interest rate hikes, while bears will celebrate an indication that a recession is coming. So the jobs data itself is irrelevant. What matters is how the market reacts to the jobs data. And with the market sentiment being neutral right now, it’s anybody’s guess if the market will rally or sell off on Friday.
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 season is coming to an end this week, with only a few major companies left to report earnings. There are no significant market-moving earnings this week, but there might be a few stocks you’re holding that will report earnings, so take a look at the list below to see if anything catches your eye.
Other Things to Know
Both the Senate and Congress are working on bills to ban TikTok. This is something that Congress wanted to do under Trump, but wasn’t successful. Now it looks like it might actually happen. It’s hard to say how long it will take the US government to ban TikTok, but once they do, this could be beneficial to companies that provide similar short form video platforms such as Instagram and YouTube. Once this bill passes, we could see a boost in stocks such as META and GOOG.
For the rest of this week’s market moving news that wouldn’t fit in this newsletter, make sure you watch the video I uploaded Sunday night: https://youtu.be/L8s7-uOS1cM.
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Wishing you the best of success trading this week,