Bitcoin rose above $40,000 for the first time in over year. Investor’s bullish sentiment has spread beyond the stock market and is now hitting the crypto market. This looks like December 2020 all over again, and it could be the start of a major rally early next year. I gave my 2024 stock market prediction in this video: https://www.youtube.com/watch?v=KhxgiJgX66c&list=UULFxFRGG-_23Kqxe0YexDc1eg.
For now, let’s take a look at what’s happening this week.
Last Week Recap
It was great news from the Fed and inflation reports last week, which helped propel the stock market higher, and helped the DOW, S&P, and Russell all finish November up by more than 9%. The NASDAQ rallied an amazing 11% in November. Last month’s rally caused the stock market to reach new 52 week highs, and the DOW even reached a new all time high. The Russell 2000, meanwhile, continues to lag behind, showing the strength of the mega-cap stocks, even as the broader stock market continues to trade near the October 2022 lows.
The Federal Reserve speakers last week all indicated that the Fed was probably done raising interest rates, although none of them indicated that the Fed might cut rates any time soon. Jerome Powell attempted to sound more hawkish by warning of the possibility for more rate hikes ahead, but the market largely brushed those comments off as lies, and the market rallied.
While Friday’s flat close gave no indication how the market might perform this week, Bitcoin’s rise above $40,000 on Sunday indicated investors remain very bullish, and will most likely bring the stock market higher.
The CNN Fear and Greed index (https://www.cnn.com/markets/fear-and-greed) shows investors remain very bullish. The Fear and Greed index finished at 67 last week. That is well into the Greed stage, without entering the Extreme Greed stage. Greed indicates a bullishness that will last, while Extreme Greed indicates a market that is too bullish, and most likely to top out soon.
The VIX rose mildly last week despite a further increase in the stock market. This could be an early indication that while options traders remain very bullish, they might be expecting some kind of pull-back in the market soon. After an 11% rise in the S&P 500 over the past 5 weeks, options traders might be right.
The daily charts remain extremely bullish. Unfortunately, they are so bullish, they are overbought and due for a pull-back. The DOW is 2.3% above the 10 day EMA, while the Russell 2000 is 3.2% above the 10 day EMA. The RSI is also at an impressive 81 on both the DOW and S&P 500. Any number above 70 indicates overbought.
Not surprisingly, the MACD has started to decline, and it is close to a death cross on the NASDAQ. This could be a good indicator that the stock market is getting ready to pull back. We might be looking at a 1 to 2 week decline before continuing higher throughout the rest of December.
While the weekly charts are also extremely bullish, they are showing signs of being overbought. While the weekly RSI values have not yet crossed 70, the candles are far above the weekly 10 EMA lines. Most importantly, it’s the 21 week EMA (not the 10 week EMA) that generally acts a support level for the market. The DOW is an impressive 5.7% above the 21 week EMA, while the S&P 500 is 4.8% above the 21 week EMA. Because of this, we are due for a pull-back soon.
This week, all eyes will be on the November jobs reports. On Wednesday, we get the ADP private payrolls report. Then on Thursday, we get the official US Government jobs data. Both reports are expected to show an increase in the number of jobs added while unemployment remains at 3.9%.
Hourly wages are expected to have increase month over month, but decreased year over year. While the expected wage increase of 3.9% is bad for inflation, it is good for the economy. Given the bullish sentiment in the market right now, I would expected investors to focus on the positives of the jobs report, while ignoring the negatives.
We do not have any Fed members speaking this week because they are entering their blackout period as they prepare for their last FOMC meeting of the year next week on December 12th and 13th. Investors are widely expecting the Fed to release a new Summary of Economic Projections (SEP) next week showing that the Fed is done raising interest rates.
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 has mainly moved to small caps now, and that means retail meme stocks are front and center. This week, we get earnings from Nio, GameStop, and C3.ai.
Other Things to Know
Crypto continues to rally, with Bitcoin rising above $40,000 for the first time in over a year. For the past few weeks in this newsletter, I’ve recommended buying Bitcoin mining stocks such as MARA, HUT, CLSK, and RIOT. Those stocks have skyrocketed over the past few weeks, and will no doubt continue to climb this week.
Last week, I closed a CLSK call option for a more than 125% profit. I’m still holding my MARA call options, which should also be up by more than 100% this week. If you want to know everything I’m buying and selling in real time, make sure to follow my trades in the Stock Dads discord at https://weprofit.io/discord/.
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Wishing you the best of success trading this week,