The stock market sits on some crucial support levels after last week’s sell-off. Should we break those support levels, we could be looking at another bear market (or possibly just a continuation of the 2022 bear market, depending upon who you ask). But if we bounce off of these key support levels, that could trigger a major rally. Ultimately what the market does this week and next will depend upon earnings from Microsoft, Alphabet, Meta, and Amazon, as well as the upcoming FOMC meeting.
Last Week Recap
The stock market started the week green on some favorable economic data. But once Tesla reported earnings, it brought the entire stock market down with it. I had predicted in a video earlier this month that Tesla would fall due to shrinking demand and lower margins, so the drop was no surprise.
As interest rates continue to rise, and treasury yields continue to skyrocket higher, this will continue to put downward pressure on the stock market, and especially tech stocks. The 10 year treasury yield finished last week at the highest level since 2006, right before the great financial crisis. And should yields rise just slightly higher, they will be at the highest level since 2001, during the dot com bubble that caused the NASDAQ to fall over 90% in 2 years.
Unfortunately last week’s drop in the stock market sent the S&P and NASDAQ back into bearish territory, with the S&P closing just above the crucial 200 day MA, and right at the 50 week SMA. The S&P 500 has not fallen below the 200 day MA since March. Most notably though, the Russell 2000 now sits just 2.5% above the 2022 bear market low. All of that points to extreme bearishness that only a miracle from the Federal Reserve’s FOMC meeting next week, or stellar earnings this week, can pull us out of.
Market sentiment remains fearful, with the Fear and Greed index (https://www.cnn.com/markets/fear-and-greed) finishing last week just 1 point above Extreme Fear. Any further declines in the market this week could send investors scrambling to sell, which would send the Fear and Greed index deep into Extreme Fear and cause investors to capitulate, which in turn would cause a further downturn in the stock market.
The volatility index (VIX) rose above 20 last week, landing it well into bearish territory for the first time since March of this year. It’s further confirmation that investors are fearful right now and options traders expect the stock market to continue to fall.
All four major indices are bearish on the daily charts. There’s no doubt the market is bearish and wants to continue to drop. But the stock market is also approaching some key support levels. The DOW is right at the 50% Fibonacci Retracement level (drawn from the all time high to 2022 lows).
The S&P 500 is just above the 200 day MA, which is a major moving average that generally is regarded as an indicator of bull markets vs bear markets. So long as the S&P 500 remains above the 200 day MA, that is still considered a bull market. But should the S&P 500 drop below the 200 day MA, that is considered a warning that we might be entering another bear market.
Further, the Russell 2000 is now just 2.5% above the 2022 lows.
Taken together, the stock market is extremely bearish, but with so many key support levels here, the market will have difficulty continuing to drop on its own. This leaves the technicals at a fairly neutral level, not giving any clear indication of whether the stock market will continue to fall, or if it will stop falling here and find a bottom. What will really move the market this week isn’t the technicals, but rather earnings.
The weekly charts are now all 100% bearish as well. What’s more telling though is the fact that the DOW and Russell are both bearish on the monthly charts also, and the S&P is on the cusp of turning bearish on the monthly charts too. While the daily charts are finding support, the weekly and monthly charts are indicating a continuation of the sell-off. So regardless of what happens over the next two weeks with earnings and the FOMC meeting, longer term investors might want to remain cautious.
With the FOMC meeting coming up next week, Federal Reserve members are in a blackout period, which means we won’t have any Fed members speaking this week. We still have some major economic news being reported this week though – most notably the Personal Consumption Expenditures Index (PCE), which is the Federal Reserve’s preferred measure of inflation. The PCE is expected to show inflation increasing, which could cause the Fed to raise interest rates at their meeting next week. So watch out for the PCE being released on Friday, which will cap off a busy earnings week.
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
This week is all about earnings. The biggest companies in the world are reporting earnings this week. The biggest market movers will be Microsoft and Alphabet on Tuesday, Meta on Wednesday, and Amazon on Thursday. Outside of the tech stocks, we also have Coca-Cola and a number of oil companies reporting, which could move the DOW.
Other Things to Know
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