Earnings season is in full swing with most of the regional banks reporting this week and mega cap tech stocks Tesla and Netflix reporting as well. With options traders pricing in a 7% move on TSLA after earnings, Tesla’s stock price could rise above $300 on an earnings beat. But with Tesla’s forward PE ratio currently above 80, Tesla will have to report perfect earnings if the share price is going to rise.
Last Week Recap
The Consumer Price Index (CPI) inflation data came in lower than expected for both headline CPI and core CPI. Headline CPI came in at just 3% and core CPI came in at 4.8%. That lead investors to believe that the Federal Reserve might actually pull off the first soft landing in history, and the stock market rallied on Wednesday.
The stock market continued its rally on Thursday as the Producer Price Index (PPI) inflation data also came in lower than expected.
And bank earnings on Friday were better than expected, with all of the major banks reporting better than expected earnings beats. All of this combined sent the DOW and S&P up over 2% on the week, and the NASDAQ and Russell up over 3% on the week.
After last week’s rally, market sentiment rose further into extreme greed. The fear and greed index (https://www.cnn.com/markets/fear-and-greed) finished at Extreme Greed for the 3rd week in a row. Earnings could change everything though, so while it’s fairly safe to remain bullish at this time, investors should watch out for any sudden changes in market sentiment should earnings come in lower than expected.
The volatility index (VIX) rose drastically higher on Monday and Tuesday last week before falling again on Wednesday and Thursday. That move could have just been options traders loading up on SPX put options over fears of a market drop due to CPI, and then closing those put options once CPI came in better than expected. The VIX closed last week at 13.34 – the lowest close in over 2 years since January 2020. This shows that the market is not only bullish, but getting more bullish by the week.
After last week’s rally, the bearishness in the daily charts is gone. The charts on all 4 major indices have returned to 100% bullish. Most notably, the DOW, S&P, and NASDAQ all rose above the 78.6% Fibonacci Retracement level. And while we usually see a slight pull-back to a Fibonacci Retracement level once, clearing this hurdle should allow the stock market to get back to all time highs soon. At this point, it is more likely that the stock market reaches new all time highs than falls. But with the NASDAQ rebalance taking place next week, that could change. Earnings could also derail the bullish stock market over the next few weeks. So even though the technicals are 100% bullish right now, they shouldn’t be relied upon until August once earnings season is over.
Like the daily charts, the weekly charts remain 100% bullish. The only concern I see is that the NASDAQ is currently overbought at 75 on the RSI. But with the NASDAQ rebalancing taking place next week, the technicals on the NASDAQ are going to be meaningless. The other market indices are accurate however, and while they are all bullish, none of them are indicating they are overbought yet.
After last week’s very busy economic cycle, this week we get a break. Retail sales will be reported on Tuesday, Housing starts on Wednesday, and existing home sales on Thursday. None of those are big enough to overpower earnings though, and there are no Fed speakers on the calendar this week either.
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
With earnings season in full swing, this is going to be an extremely busy week for earnings. The biggest focus will be the regional banks, which will be reporting earnings every day this week. In particular, PNC bank and Zions Bankcorp are the two banks that investors were most worried about during the March bank collapses, and both of those banks report this week. While bank earnings are expected to have risen, the real question will be how strong the bank balance sheets are. Can banks survive a commercial lending crisis? That is the question investors will be look for answers to this week.
In addition to the banks, there are a number of other large companies reporting this week, including Halliburton, Netflix, United, Lockheed Martin, IBM, American Airlines, Taiwan Semiconductor, Johnson & Johnson, Intuitive Surgical, American Express, and more.
The biggest earnings this week though will be Tesla which reports Wednesday after the close. To see a full analysis of what to expect for Tesla earnings, make sure you watch the video I uploaded Sunday night: https://www.youtube.com/watch?v=3auhOULJMp0&list=UULFxFRGG-_23Kqxe0YexDc1eg.
Other Things to Know
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Wishing you the best of success trading this week,