After the wild week last week, you probably want to know if the bullishness will continue, or if the market is overbought and due for a pull-back. The answer might be both! With oil prices rising 5% on Sunday, multiple Federal Reserve members speaking this week, and jobs data being released on Friday, this could be another volatile week. Here’s everything you need to know to prepare for this week.
Last Week Recap
Last week saw another volatile week with extreme bullishness on Wednesday, Thursday, and Friday. Bears might even say it was too bullish and due for a pullback, while bulls point to hopes of a Fed rate cut and last week’s lower than expected PCE inflation data as signs that the bottom is in and a new bull market has started. You need to be aware that this bullishness is dangerous, as the market is fighting the Fed right now. Jerome Powell has said many times that the market is getting it wrong in predicting rate cuts this year. The Federal Reserve WILL NOT cut rates this year. Yet the market continues to price in 4 rate cuts this year, which is causing a lot of the bullishness in the stock market. The old saying, “Don’t fight the Fed” should be a warning to all investors that this bullishness might not last. Last week also saw the end of the quarter where it’s possible stocks were rising as window dressing for mutual funds and hedge fund managers. If that’s the case, there’s a good chance for a sell off this week as large institutional investors rebalance their portfolios.
Market Sentiment
The fear and greed index (https://www.cnn.com/markets/fear-and-greed) increased again last week to Neutral, ending the week at 49. While you might think that the rise in Market Sentiment means more bullishness ahead, it’s important to remember that “Neutral” is just that – neutral. It neither indicates bullishness nor bearishness. That leaves a lot of uncertainty as to what direction the market will trade this week.
Another market sentiment indicator, the VIX, fell to a major support level last week. The VIX ended the week at 18.70. Any number above 20 indicates bearishness, while any number below 18.50 indicates bullishness. But it’s important to know that 18.50 is the point at which the VIX normally bounces and starts going back up. Much like the “neutral” level on the Fear and Greed index, any number between 18.50 and 20.00 indicates neutral market sentiment. So it remains unclear from the VIX which direction the market will trade this week.
Technical Analysis
After the extreme bullishness at the end of last week, the technicals on the daily charts have all turned 100% bullish. But are they TOO bullish? Well, the RSI is not yet indicating overbought on any of the daily charts, so we certainly could see another bullish week this week. However, the S&P 500 is at a technical resistance level, which is the 50% Fibonacci Retracement level. The means the stock market has now recovered half of the losses it suffered during last year’s bear market. That would indicate that while the overall trend remains bullish, we might get a pause in the bullishness this week as the market struggles to break above this key technical resistance level.
The weekly charts have not changed since last week. The DOW and S&P remain neutral with mixed technicals, while the NASDAQ is 100% bullish, and the Russell 2000 is 100% bearish.
Economic News
There is a lot of economic news coming out this week, with the most important being the jobs data. On Wednesday the ADP private payrolls data will be released, and on Friday the official government jobs data will be released. Economists are expecting the jobs data to show a tightening in the labor market. Deviations from expectations could be traded as both bullish and bearish. A stronger than expected labor market could cause bulls to celebrate the strong economy and lower chance of a recession, while bears celebrate the Fed continuing to raise interest rates. On the other hand a weaker than expected labor market could cause bulls to celebrate the possibility of the Fed cutting interest rates later this year, while bears celebrate the increased likelihood of a recession.
In addition to the jobs data on Friday, we also have numerous Fed members speaking this week which could move the markets as well. While most Fed speakers are speaking before or after market hours, Fed President Bullard is speaking on Thursday at 10 am while the markets are open.
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
With earnings season officially kicking off at the end of next week on April 14 with JPMorgan Chase, there are only a few companies reporting earnings this week.
Other Things to Know
OPEC+ announced a surprise oil production cut on Sunday which caused oil futures to jump over 5% on Sunday. This means inflation will rise once again. Historically when oil prices rise, the stock market falls. I explained this and other individual stock news such as the Tesla delivery numbers in my video Sunday night. Watch it here if you missed it: https://youtu.be/UfzppMkv3Qw.
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Wishing you the best of success trading this week,
Stock Curry