Try to relax during the market closure on Monday, because this is going to be a big week for the stock market. Monday is a holiday in the United States and the markets are closed, then Tuesday is the calm before the storm. Because on Wednesday the FOMC meeting minutes come out, and they have the potential to create some serious volatility in both the stock market and the bond market. But this crazy week doesn’t end there, because on Friday the PCE inflation index comes out, and that is the Federal Reserve’s preferred measure on inflation, and that report has the potential to crash the market if it comes in hot like the PPI did. I want to make sure you’re prepared for this crazy week, so here’s everything you need to know.
Last Week Recap
A major shift occurred in the stock market last week. The markets have been ignoring all of the bad news for for the past 4 months. Even when the Consume Price Index (CPI) inflation numbers came out on Tuesday higher than expected, the market barely blinked, and the NASDQ rose nearly 1%. But that all changed on Thursday when the Producer Price Index (PPI) inflation numbers came out significantly higher than expected. The stock market was shocked, and seemed to have finally woken up to reality. The markets sold off on both Thursday and Friday, and the S&P notched its second losing week in a row. Meanwhile, the dollar made a significant move to the upside (which means lower profits for companies that operate internationally), and the VIX closed above 20 for the second week in a row (which is a bearish market indicator).
Market Sentiment
Market sentiment held steady at the “Greed” stage, although all signs point to market sentiment becoming less greedy by the day. With the slowdown over the past two weeks, the market momentum has dropped from “Extreme Greed” to “Greed”, and while most of the other indicators are still in the “Extreme Greed” range, they are quickly dropping in bullishness. More people are buying put options, indicating options traders are starting to get bearish again, although the VIX is still below it’s 50 day moving average, which causes the overall sentiment to remain greedy / bullish. If the markets drop again this week, we can expect the VIX to fall into the “Fear” range with the other indicators following suit. (https://www.cnn.com/markets/fear-and-greed)
Technical Analysis
The daily charts have intensified their bearish stance, with all of the major indices except the Russell 2000 trading below their 10 day EMAs. All of the indices are still trading above their 21 day EMAs though. Also of note is the fact that all 4 major indices have acquired death cross on the MACD. Still, the RSI remains above 50 on all 4 major indices, and all 4 major indices also have the 10 day EMA remaining above the 21 day EMA. So even though the markets are losing their bullishness, they still remain about 65% bullish overall. So the markets could still go either way. If the FOMC meeting minutes coming out on Wednesday and the PCE inflation data coming out on Friday cause the stock market to sell off again, we could add on to the bearish indicators and we might even get some confirmation of continued bearishness on the charts.
The weekly charts on all of the major indices remain extremely bullish. Even if we get another red week this week, it won’t be enough to ruin the bullish technicals on the weekly charts. All of the major indices remain well above their 10 week and 21 week moving averages. They also all have positive MACD indicators and RSI values above 50. The weekly candles did reject off of major resistance levels again this week though, so the resistance is strong and will make it difficult for the markets to continue moving higher. But with the overall bullishness remaining, this appears to be more of a pause in the bullishness rather than an end to the bull run. So even if you think this week might be bearish will all of the news coming out, be mindful that markets overall remain extremely bullish, and the markets might continue the bull run in March.
Economic News
This is a big week for the stock market with major economic news coming out. There’s only one Federal Reserve member speaking though, so we won’t have to worry about someone saying something out of the blue that crashes the market. There’s no economic news on Monday with the Federal holiday, so this week’s economic news kicks off shortly after the market open on Tuesday.
About 30 minutes after the stock market opens on Tuesday, we’ll get the existing home sales data. While this shouldn’t move the stock market too much, day traders should be aware of this news coming out at 10am on Tuesday.
Then on Wednesday, we get the big one. The FOMC minutes from the Federal Reserve’s Feb 1 meeting will be released. The meeting minutes come out at 2pm Eastern Time, or about 2 hours before the market closes. With the stock market generally ignoring the Federal Reserve’s hawkish comments over the past 3 weeks, yet selling off on high inflation numbers last week, these meeting minutes could cause the stock market to crash if two factors are present:
- The meeting minutes are hawkish, and reiterate that the Federal Reserve has no intentions of lowering rates or doing rate cuts at all this year.
- The stock market is ready to pay attention to the Federal Reserve again.
On Thursday we get weekly jobless claims and a revision to the Q4 GDP estimate. Neither one of those are expected to move the market that much, but do keep in mind that we have Atlanta Fed President Bostic speaking at 10:50am.
Then on Friday we get a lot of economic data. The most important of which is the Personal Consumption Expenditures Price Index, or PCE, which is the Federal Reserve’s preferred inflation gauge. If the PCE comes in hot like the CPI and PPI did last week, we could see the stock market sell off again 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
Earnings season continues this week with companies that are popular among retail investors taking center stage. Tuesday before the open we’ve got Walmart and Home Depot reporting, and after the close on Tuesday we’ve got Coinbase. Then Wednesday before the open Baidu reports. Then Wednesday after the close we’ve got Nvidia, Lucid, Unity, Etsy, Teladoc, and more. Earnings continue on Thursday with Alibaba in the morning, and Block (Square), Carvana, Wish, and Beyond Meat after the close.
Other Things to Know
Facebook is rolling out a paid verification service similar to Twitter, so be on the lookout for a pop in Meta (META) on Tuesday and throughout the rest of this week.
Also, don’t FOMO into crypto right now. It’s been running up in the face of a lot of bad news, and these irrational speculative hype cycles always end in epic crashes. If you’re trading crypto, keep your stop losses tight (and preferably above your buy-in price) so that you don’t take on major losses when crypto eventually falls.
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Wishing you the best of success trading this week,
Stock Curry