Of the 84% of S&P 500 companies that have reported earnings so far, nearly 80% have beat analyst expectations. But with valuations already high, not every stock has risen after beating earnings expectations. Most notably, Tesla, Microsoft, and Ford all fell after earnings. The extremely bullish market sentiment we’ve experienced over the past few months is dropping, and last week was especially bad with the S&P down 2.3% and the NASDAQ down 2.9% on the week. Is this the start of a correction as we enter the worst month of the year for the stock market in September, or was last week just a fluke and we’ll see the stock market rally again this week? It’s time to find out!
Last Week Recap
Earnings last week were strong with most companies beating earnings expectations and seeing their stock prices rise. But the bullishness was hindered by Fitch downgrading the US credit rating. The last time the US credit rating was downgraded in 2011, the S&P fell 7% and the NASDAQ fell 16%. This time however, economists and bankers believe the sell off in the stock market will be short and shallow. We’ll find out if they’re right or not this week.
After 5 weeks in a row at Extreme Greed, the fear and greed index (https://www.cnn.com/markets/fear-and-greed) fell last week to 69, finishing in the Greed stage. This was partially due to market momentum slowing down as the market fell last week. But most notably, market volatility and safe haven demand fell all the way into the Fear stage. The VIX rose above the 50 day moving average, and demand for safe haven stocks and bonds skyrocketed.
The volatility index (VIX) rose 28% last week to finish at 17.10. That’s the highest close on the VIX since May. But it’s not as bad as it seems – at least not yet. Although the VIX rose significantly last week, it is still below the 18.50 level which marks neutral, and still well below the 20 level which marks bearishness. So with the VIX only at 17.10, it is still well within the bullish stage.
After months of bullishness, all 4 major indexes have turned bearish on the daily charts. The DOW produced a MACD death cross and the candle closed below the 10 day EMA. But the chart isn’t 100% bearish. The RSI is still above 50, and the candle is still above the 21 day EMA. We find an identical situation with the Russel 2000.
But the S&P 500 and NASDAQ 100 are 100% bearish. Both the S&P and NASDAQ closed Friday with a MACD death cross, RSI below 50, and their candles below both the 10 day and 21 day EMAs. Both indices closed at the 78.6% Fibonacci Retracement levels though, which could act as support this week. So despite the daily charts being bearish, there’s still a chance for a rebound this week.
Despite the daily charts turning 100% bearish, the weekly charts remain 100% bullish on all 4 major indices. All 4 major indices have candles that remain well above the 10 week EMAs, so the market could still fall further while maintaining the 100% bullishness on the weekly charts. Specifically, the S&P could fall another 1.3% and the NASDAQ could fall another 1.7%. So even if we get another red week this week, we could still remain 100% bullish on the weekly charts.
Both the July Consumer Price Index (CPI) and the July Producer Price Index (PPI) are being released this week. Both of these reports will give us an idea if inflation is continuing to come down, or if last month’s surprise drop was just a fluke. The headline CPI is expected to rise to 3.3% from 3.0% last month, but the core CPI (which the Federal Reserve really cares about) is expected to fall to 4.7% from 4.8% last month. The Producer Price Index forecasts have not yet been released.
If the CPI comes in lower than expected, we could see the stock market rally on Thursday, but if it comes in higher than expected, we could see the stock market sell off on Thursday. The PPI is being released on Friday.
In addition to the two inflation reports being released this week, we also have two Fed Presidents speaking 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
All of the mega cap companies except Nvidia have now reported earnings (Nvidia is expected to report earnings in two weeks on August 22). This week the focus shifts to DOW and Russell stocks. Monday after the close, Palantir, Lucid, and Beyond Meat report. Tuesday morning UPS reports, then after the close we get earnings from Rivian and AMC. Then Wednesday morning before the open we get earnings from Roblox before hearing from Disney, Plug, and theTradeDesk after the close. We wrap things up on Thursday morning with Alibaba.
Other Things to Know
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