The big news this week is the June FOMC meeting taking place on Tuesday and Wednesday. Some important inflation data will come out while the Fed meets, and with the Federal Reserve in a blackout period this week, we won’t get any updates on what the Federal Reserve will do. CME futures are pointing to a 70% chance of a pause, and a 30% chance of another 0.25% rate increase. But even if the Federal Reserve does pause, there’s a good chance they might raise rates again in July. So market participants will be listening closely to what Jerome Powell says on Wednesday for any insights into what the Fed might do at their July FOMC meeting.
Last Week Recap
While there was no major economic news last week, the market did get surprised by the SEC crackdown on crypto exchanges Binance and Coinbase, which sent shares of Coinbase down 27% before it recovered about half of the losses. The rest of the stock market traded fairly flat with the DOW, S&P and NASDAQ all moving less than 0.5% on the week. But intra-week there was volatility, with the markets selling-off on Wednesday, then recovering on Thursday and Friday. And while most of the mega cap tech stocks finished the week fairly flat as well, Tesla and AMD were the outliers with TSLA up over 4% on the week and AMD up over 3% on the week. With Friday’s rally, TSLA is now up 11 days in row. This matches the recorded for longest win streak on TSLA, leading some to believe the stock is due for a pull-back. And with the daily RSI at 76, they might be right.
The fear and greed index (https://www.cnn.com/markets/fear-and-greed) rose last week, finishing in Extreme Greed for the first time since 2021. While greed shows bullish market sentiment, extreme greed indicates the market is too bullish and stocks are becoming overbought. As Warren Buffett said, “Be fearful when others are greedy.” The extreme greed might continue to push stocks up for a while, but be careful for a rug-pull. The FOMC meeting on Wednesday might just end up being the straw that breaks the camel’s back and causes a much needed pull-back to start.
The volatility index (VIX) declined again last week, closing the week at 13.83, for the lowest close since February 2020. The VIX has strong support at 12, so if the VIX continues to decline to 12, that could mark the top for this market rally we’ve seen over the past 8 months. While it’s unlikely the market will reach new all time lows, a pull-back of 5% – 10% is likely. Once the pull-back is over, the market rally should continue so long as recession fears stay away.
Last week’s flat market allowed the technicals to remain bullish without pushing them into overbought territory. This would indicate a continuation of the bull run this week. One shocking development was the rally in the Russell 2000 on Monday and Wednesday that send the Russell skyrocketing deep in to bullish territory. The Russell now joins the DOW, S&P, and NASDAQ in 100% bullish territory, leaving all 4 major indices 100% bullish. It should be noted however that both the S&P and NASDAQ finished Friday with doji candles, which can be an indicator of a reversal. Also watch out for the Fed Meeting on Wednesday, because once Jerome Powell starts speaking, the technicals won’t matter.
The weekly charts have now joined the daily charts in being 100% bullish. Even the Russell has turned 100% bullish after last week’s rally on Monday and Wednesday. The only concern is that the NASDAQ remains overbought on the weekly chart, indicating a pull-back coming soon. The weekly candle on the NASDAQ was also a doji, indicating a reversal.
This week is jam packed with major economic news, including the Consumer Price Index (CPI) and Producer Price Index (PPI) inflation data for May. Both of those inflation data points will affect the Federal Reserve’s decision on whether to pause interest rate hikes, or do another interest rate hike at their meeting on Tuesday and Wednesday. Their decision on whether or not to raise interest rates will be announced Wednesday at 2pm, about 2 hours before the market closes. 30 minutes later Jerome Powell will hold a press conference explaining the Fed’s decision and answering questions from the press. With this month’s decision so uncertain, whatever the Federal Reserve does is expected to have a significant impact on the stock market.
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 over, but we’ll still have a few companies reporting each week. This week the biggest companies reporting earnings are Oracle on Monday, Kroger on Thursday before the open, and Adobe Thursday after the close.
Other Things to Know
Next Monday, June 19, is a US holiday and the markets are closed. So plan your options carefully, especially any you plan to hold over the weekend.
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Wishing you the best of success trading this week,