A short Thanksgiving week means lower volume, but not necessarily lower volatility. With Nvidia reporting earnings this week, we can expect some major volatility on Wednesday. There is also some key economic data about consumer spending that will be important to watch this week.
After traveling to Chicago last week to ring the closing bell at the CBOE, I’m ready to get back to trading this week!
While I was gone, Ace completed his $1,000 to $10,000 challenge in the discord. If you want to learn more about what Ace did and how we’re starting our next challenge, make sure you watch the latest video here: https://www.youtube.com/watch?v=boIKJvn5K5Q&list=UULFxFRGG-_23Kqxe0YexDc1eg
Last Week Recap
Stocks rallied for the 3rd week in a row last week, with the DOW, S&P, and NASDAQ all rising over 2%, and the Russell rising over 5%. With last week’s rally, stocks are approaching overbought, although they’re not quite there yet.
Stocks seemed to brush off the Moody’s warning on the US credit downgrade as the investors appeared exuberant over Congress’ ability to avoid a government shutdown by extending the current budget through the end of January. While the good news last week was temporary, it was enough to send stocks rallying.
The NASDAQ is up so much over the past 3 weeks, it completely wiped out the correction from the past 4 months, and even hit a new 52 week high. The NASDAQ is now up 11.4% over the past 3 weeks, the DOW is up 7.8%, the S&P is up 9.5%, and the Russell 2000 is up 10%. That’s how much the market normally rises in an entire year, and we just saw it happen in 3 weeks!
After a 3rd week in a row of the stock market rallying, the CNN Fear and Greed index (https://www.cnn.com/markets/fear-and-greed) finally rose to the Greed stage. But just because the overall indicator is Greed, doesn’t mean we are completely bullish. The individual indicators are actually quite mixed, with just the average being Greedy.
Stock price strength and stock price breadth are both still bearish. This means the rally over the past three weeks remains limited to just a few stocks, and has not yet spread to the overall broader market. On the other hand, options traders have switched to full on Extreme Greed, loading up on call options. This means options traders expect the market to continue to rally, meaning we might eventually see the overall stock market catch up to the top 7 mega-cap stocks.
Backing up the extreme greed from options traders in the Fear and Greed index, the volatility index (VIX) dropped again last week, closing at just 13.80. That is deep in bullish territory and a clear indication that options traders expect the market to continue to rally.
Not much has changed on the daily charts from a technical perspective. The daily charts remain extremely bullish with a lot of warning signs of a possible downturn ahead. Last week added more gaps in the daily candles that might get filled in eventually. 90% of gaps eventually get filled in, but trying to time when those gaps will get filled in is nearly impossible.
Some bears might be looking to the RSI and Bollinger Bands for signs of the market being overbought. But bears should be cautious that while the market might be approaching an overbought state, it’s not there yet. Bears should also be aware that the market can correct its overbought state by simply trading flat for a few weeks. The market doesn’t necessarily have to fall, although a temporary decline to fill in the gaps on the daily candles would make me more comfortable about buying in to a sustained rally.
Despite the warnings though, the economic news over the past few weeks, combined with the current technical indicators, should be enough for the rally to continue longer term.
Despite the 3rd weekly rally in a row, the weekly charts have yet to turn 100% bullish. The DOW, S&P, and NASDAQ remain in the same state they were in last week. The candles are above all of the EMAs and the RSI is above 50, both of which are bullish. But the MACD remains bearish on all 3 indexes.
Unlike last week however, where the Russell 2000 was still extremely bearish on the weekly chart, that index is now starting to turn. While the MACD remains bearish and the candles are still below some of the longer-term EMAs, the RSI has risen to neutral, and the candles are back above the shorter term 10 and 21 day EMAs. Overall, the Russell is neutral, which is better than it was last week.
There are three main economic indicators being released this week that might move the markets, although I don’t expect any of them to have a major impact outside of possibly a one-day rise or fall.
On Tuesday at 10 am we get the existing home sales number for October, and on Wednesday at 8:30am we get the durable goods orders for October. The one fear is that the durable goods for October is expected to have fallen from +4.6% in September down to -3.5% in October. While that is really bad, the news will most likely be overshadowed by Nvdia’s earnings.
Tuesday at 2pm we also get the minutes from the Fed’s last FOMC meeting that took place on October 31 and November 1. The meeting minutes might give some insight as to whether or not the Fed plans to do any more rate hikes. Right now the market is pricing in no more rate hikes, so any indication to the contrary might cause the markets to fall.
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
There is one major company reporting earnings this week that will have a major impact on the stock market on Wednesday, and that is Nvdia. Nvidia reports earnings Tuesday after the close. And with Nvdia making up 2.7% of the S&P 500 and 5.3% of the NASDAQ, Nvdia’s earnings are going to have a major impact on the stock market on Wednesday. Options traders are currently pricing in a more than 12% move to Nvidia’s stock by the close on Friday.
Other companies reporting earnings this week include Zoom, Kohl’s, HP, John Deere, and Futu.
Other Things to Know
Crypto continues to rally, with Bitcoin still above $37,000. Bitcoin mining stocks continued their rally last week. Alt coins also rose, with some rising faster than Bitcoin and Ethereum. Some stocks you might want to consider investing in, or even buying call options on, include MARA, HUT, CLSK, and RIOT. I sold cash secured puts on CLSK last week, and I plan to make more crypto trades this week.
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Wishing you the best of success trading this week,