Tech earnings start this week, with Tesla, Netflix, and more reporting. In addition, the final round of economic data is being released prior to the Federal Reserve’s meeting next week. And while hopes for a Fed rate cut in March have waned, causing the Russell 2000 to fall, a few mega-cap tech stocks have continued to rally, causing the DOW, Nasdaq, and now S&P 500, to all reach record highs.
Meanwhile, the leading economic indicators continue to indicate a recession is coming as the economy continues to slow down and inflation data starts to rise once again. But despite the economy slowing down, the stock market continues to rally. If you want to know why stocks continue to rise, despite the economy slowing down, be sure to watch my latest video here: https://www.youtube.com/watch?v=KD_9IgXfupI&list=UULFxFRGG-_23Kqxe0YexDc1eg.
Last Week Recap
The big focus last week was on the Federal Reserve speakers. Last week was the last chance for Federal Reserve members to speak before their blackout period started this week, prior to their FOMC meeting next week. And when FOMC members spoke last week, the stock market fell. On Tuesday, the S&P 500 fell 0.3%, and on Wednesday, the S&P 500 fell 0.6%. The Russell 2000 took the hardest hit, falling 2% over those two days.
But then on Thursday, the stock market turned around and started to rally again. The DOW was up 1.5% on Thursday and Friday combined, the S&P 500 was up over 2%, and the Nasdaq was up 3.5%. Despite the seemingly broad rally, it was actually limited to just a few stocks, mainly the Magnificent Seven (minus Tesla). The Magnificent Seven are so heavily weighted in the indexes, that just those few stocks rising was enough to bring up the entire index.
The reason the Magnificent Seven rose was because Taiwan Semiconductor reported better than expected earnings and better than expected chip deliveries. That caused hope that US chip stocks would report better than expected earnings also, which caused Nvidia and AMD to rally. The rest of the Magnificent Seven then joined in on the rally, although Tesla got left behind.
After last week’s rally, market sentiment on the CNN Fear and Greed Index (https://www.cnn.com/markets/fear-and-greed) rose again. But despite the continued rally, market sentiment only rose 1 point. While the Fear and Greed index remains in the Greed stage, the individual makeup of the Fear and Greed index continues to show that the S&P 500 might be topping out and about to start going back down.
This belief that the market might be topping out, and might start going back down, is backed up by the VIX. The VIX rose last week 4.5% to close at 13.30. While this number is still quite bullish, it does show options traders are starting to buy more and more put options to hedge against a possible downturn in the market.
The DOW and S&P remain mostly bullish on the daily charts. But curiously, despite both reaching new all time highs, the MACD on both charts remains in bearish territory. The rest of the indicators, including the candles and RSI, are bullish. Since the RSI isn’t overbought yet, there is no indication on the daily charts that the market rally will slow down.
The NASDAQ differs in that it is 100% bullish, including the MACD which just formed a golden cross on Friday. The NASDAQ also differs in that the RSI is above 70, indicating that the market is over-bought, and due for a pull-back.
The Russell 2000 is in a completely different boat. The Russell 2000 is about 60% bearish. The candles are below the 10 and 21 day EMAs, the MACD is bearish, and the RSI is neutral. The weakness in the Russell 2000 has a lot to do with the fact that it doesn’t include any mega-cap tech stocks. And since the rally this year has been limited to only mega-cap tech stocks, the Russell 2000 fell behind.
Unfortunately with the technicals all over the place, there isn’t enough consistency to draw any conclusions from the daily charts. That means this week could be quite volatile and difficult to predict. Traders will mostly have to look for earnings plays this week, and ignore the overall market indices.
While the daily charts are all over the place, the weekly charts are painting a very clear picture. The weekly charts are 100% bullish across all 4 major indices, even the Russell 2000. The concern on the weekly charts is that the RSI remains over 70, indicating a market that remains over-bought and due for a pull-back.
Shockingly it’s not even the Nasdaq that’s the most overbought – it’s the DOW. The DOW has the highest weekly RSI at 72, and the candles haven’t touched the 10 week EMA since early November. The DOW rallied on hopes for a Fed rate cut in March, and 6 rate cuts overall this year. But those hopes for a March rate cut are starting to wane, and that might just be the catalyst that’s needed to get the DOW out of the clouds and back down on the ground.
There’s very little economic news that will move the markets this week. Federal Reserve members are in a blackout period prior to the FOMC meeting next week, and the economic calendar is light. There are a few things that could move the markets though. Investors should watch out for the PMI numbers on Wednesday, the preliminary Q4 GDP numbers on Thursday, and the PCE inflation numbers 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
The big news this week will be earnings. Some of the mega-cap tech stocks report this week, including Netflix, Tesla, and Intel. Other major earnings investors will want to watch out for include United Airlines on Monday, Verizon and 3M on Tuesday, AT&T and IBM on Wednesday, American Airlines and Visa on Thursday, and American Express on Friday.
Other Things to Know
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