In the last 3 days, 2 of the 40 largest banks collapsed. Bank bailouts occurred, and now the stock market is rallying, with futures up nearly 2%. After Silvergate Capital collapsed, Silicon Valley Bank collapsed on Friday, and Signature Bank collapsed on Sunday. The Treasury Department stepped in and bailed out these banks in order to prevent a systematic collapse of the US banking system. In addition, the Treasury Department will offer up to $25 billion to bail out other banks. But it might be too little too late, as banks have racked up more than $600 billion in losses over the past year and half.
Last Week Recap
Last week saw significant declines in the market as Silicon Valley Bank collapsed. Billions of dollars worth of stock was sold as investors rushed to move thier money into safer assets such as bonds. As a result, bond prices skyrocketed on increased demand, which sent yields plummeting. It was the largest drop in bond yields since 2008. It’s important to remember that the technicals no longer matter as we have now entered a news-driven market.
The fear and greed index (https://www.cnn.com/markets/fear-and-greed) fell into the extreme greed category on Friday over fears of a systematic wide bank collapse. It should be noted that most of the fear showed up in the bond market though, and the stock market remained relatively strong.
The VIX gave us the weekly golden cross on the MACD that I’ve been mentioning for the past few weeks, and hit 29 on Friday before falling back down to close just under 25. The VIX is expected to fall significantly on Monday, possibly falling back below 20 as fears of a systematic wide bank failure reside. But news coming out on Tuesday and Wednesday could cause the VIX to rise once more.
Last week’s sell-off caused all 4 major indices to continue their plunge deeper into bearish territory. On the daily charts, the DOW fell below the 50% Fibonacci Retracement level, the S&P fell well below the 200 day moving average, the NASDAQ fell below the 23.6% Fibonacci Retracement level, and the Russel fell down to a support level established in May last year, and is now just 9% above the 52 week lows set in October. 9% may seem like a lot, but not when you consider that the Russel fell 8% just last week alone. All 4 major indices remain 100% bearish on the daily charts.
The weekly charts are less bearish than the daily charts, but not by much. The DOW continued it’s bearish run lower, and has now locked in 100% bearishness with the candles below all but the 200 and 300 week EMAs, the MACD bearish, and the RSI bearish. The S&P is just barely hanging on to bullishness on the MACD, but is very close to a death cross. The rest of the fundamentals are all bearish. The NASDAQ is the strongest of the 4 major indices, but even it closed below both the 10 and 21 week EMAs and the RSI fell below 50. And after last week’s 8% drop on the Russel, it also has turned mostly bearish, but like the S&P is just barely hanging on to a bullish MACD and has not yet received the dreaded death cross.
The Federal Reserve is in a blackout period until the FOMC meeting next week, so we’re just going to have some economic news to look forward to this week. The most important of which will be the CPI data on Tuesday and the PPI data on Wednesday. After last week’s bank collapses though, the Fed might be more interested in reducing their rate hikes to prevent more bank runs rather than focus on higher rate hikes to reduce inflation. CME futures reduced the outlook for a 50 basis point rate hike next week down from an 80% chance on Wednesday to only a 40% chance on Friday. More details about what’s going on with the bank failures and the Federal Reserve’s response were give in Sunday night’s video (https://youtu.be/kTZ1ubIo2NU).
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
Although 99% of S&P 500 companies have already reported earnings, there are still some small cap stocks reporting this week that you might be interested in.
Other Things to Know
A deluge of news came out on Sunday concerning the bank collapses over the past few days. While I couldn’t possibly include all of the information in this newsletter, I did give a full summary in Sunday night’s video. So make sure you watch it if you haven’t already. The video link is here: https://youtu.be/kTZ1ubIo2NU.
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Wishing you the best of success trading this week,