Expect a very volatile week this week with strong technical resistance, the May FOMC meeting minutes being released, PCE inflation data coming out, and the debt ceiling limit looming on June 1. If last week taught us anything, it’s that the market can move up or down 2% on the slightest news of debt limit talks progressing or stalling.
Last Week Recap
The stock market rallied last week with the S&P 500 up nearly 2% and the NASDAQ up 3.5%. The only thing keeping the stock market from rising more was some technical resistance on the S&P. The stock market rallied on Wednesday and Thursday over hopes of a debt limit agreement and avoidance of a US default, and some of the mega cap tech stocks (Apple, Microsoft, and Nvidia) are now near 52 week highs.
Earnings were mixed, with Home Depot reporting the worst revenue miss in over 20 years, while Walmart reported a slight beat. Despite the massive earnings miss, the overall market rally helped pull up Home Depot, and it finished the week up 0.14%. Walmart on the other hand finished the week down over 2%, but still remains near 52 week highs. Sometimes the stock market just doesn’t make sense.
The fear and greed index (https://www.cnn.com/markets/fear-and-greed) remains in the greed stage for the 5th week in a row. It also reversed the slow downtrend and finished the week at 67 (higher than the previous 3 weeks). While the market sentiment remains bullish, individual indicators in the fear and greed index show that the bullishness is limited to relatively few stocks, and the majority of the stock market continues to struggle. I explained this in greater detail in Sunday night’s video (https://youtu.be/6LH5kw6wlQw).
The volatility index (VIX) declined slightly again last week to finish at 16.81. This confirms the bullishness that the Fear and Greed index is signaling, indicating that bulls remain in control of the market.
The daily technicals flipped last week and turned bullish once again. The S&P and NASDAQ remain 100% bullish, while the DOW and Russell are mostly bullish. Normally I would expect the stock market to continue to rally this week, but there is a major technical resistance level that the S&P is struggling to overcome. The S&P futures (/ES) are struggling to stay above 4,200. This level is the 100 week moving average on the SPX (which is the Chicago Board of Option Exchange’s S&P 500 index). But we are also approaching the 61.8% Fibonacci Retracement level, which is historically the point where a bear market rally will top out. If the SPY can get above $425, then the market will have crossed above all of the technical resistance levels, and will be free to rally back to all time highs. But you should be aware of just how strong the resistance levels are that we are currently at. There are numerous indicators that this may be the top of the rally for now, including elevated PE ratios, weakening stock market breadth, and recession fears mounting. Combined with the technical resistance levels, the stock market might top out this week and start going back down in June. So while the technicals are extremely bullish, be aware of the factors that could end the currently rally.
The weekly charts are unchanged from last week. The DOW, S&P, and NASDAQ all remain 100% bullish, while the Russell remains 100% bearish. This discrepancy actually makes sense once you understand how the market indices are weighted. If you want to understand this discrepancy better, as well as the warning sign it’s showing, make sure you watch Sunday night’s video (https://youtu.be/6LH5kw6wlQw).
There are two major economic announcements you need to be prepared for this week. The first is the May FOMC meeting minutes release on Wednesday at 2pm Eastern (2 hours before the market closes). Sometimes the FOMC meeting minutes do nothing, and sometimes they cause major market movements. So watch out for the meeting minutes on Wednesday. Also know that if you trade options, that options prices will be elevated throughout the day on Wednesday due to the high implied volatility on an expected movement when the FOMC meeting minutes are released.
The second major economic news you need to know about is the release of the Personal Consumption Expenditures Index (PCE) on Friday. The PCE is the Federal Reserve’s preferred measure of inflation. With multiple Fed members now saying that they think the Federal Reserve should raise interest rates again in June, the PCE will be a big market mover if it comes in higher than expected, because that could help solidify another interest rate increase in June.
We also have Federal Reserve members speaking every day this week except Friday, so make sure to review the Fed calendar below so that you don’t get surprised by any intra-day sudden movements in the markets.
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 continues this week with one MAJOR earnings announcement – Nvidia. With Nvidia’s recent rise, it now carries a heavy weight in both the S&P 500 index as well as the NASDAQ. And with NVDA now trading at a 180 PE ratio, it will require a massive earnings beat to keep the momentum going. Any major price movement post earnings could have an outsized impact on the S&P and NASDAQ on Thursday due to Nvidia’s heavy weighting.
There are also a number of other major companies reporting earnings this week including Zoom, Lowes, Dicks, Snowflake, elf, Best Buy, and Costco.
Other Things to Know
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