This is going to be one of the busiest and most volatile weeks of the year for the stock market. Between the collapse of First Republic Bank, the May FOMC meeting, Apple earnings, and the March jobs report, you can expect this week to be one of the most volatile and heavily traded weeks in months.
Last Week Recap
Last week saw massive gains in the stock market after the mega cap tech companies all beat earnings. After weeks of trading flat, the markets woke up and went on a bull run. In fact, both the S&P and NASDAQ finished at their highest levels in 8 months after they both rose 3% on Thursday and Friday. It was a complete reversal from the extreme bearishness we saw in the first half of the week, as the markets completely brushed off the bad economic news and focused on earnings instead. Earlier in the week a weaker than expected Q1 GDP report sent the market falling. But better than expected earnings turned things around. The better than expected earnings were limited to a few mega cap companies as most companies reported poor earnings. But those few mega cap companies make up a sufficiently large enough portion of the major indices to cause them to rise despite the majority of companies reporting poor earnings.
While the fear and greed index (https://www.cnn.com/markets/fear-and-greed) remains in the greed stage after another bullish week, it did fall to 60 from 63 last week and 67 the week prior, indicating that the bullishness may be wearing off. This, among other things, has led some investors to believe that the rally on Thursday and Friday was just a bull trap, and that the market will drop this week.
The volatility index (VIX) dropped to the lowest level since November of 2021. That means the VIX remains solidly in the bullish spectrum, indicating a continuation of the bullishness we’ve seen over the past 7 weeks. Bears hopes that this would indicate a top in the market appear to be fading as the VIX continues to fall lower and lower. But things could change this week given the huge amount of economic news and earnings coming out.
After 6 of the past 7 weeks saw gains, the technicals are one step closer to complete bullishness. On the DOW, S&P, and NASDAQ, the technicals are almost 100% bullish, with only the MACD remaining bearish. The Russell on the other hand was the outlier last week, with it somehow remaining 100% bearish on the daily charts. If the markets can pull off another week of bullishness, we could finally see the MACD turn bullish once again, solidifying further gains in the market. But the Russell will need a lot of help from small cap earnings for it to turn around.
The weekly charts are 100% bullish on the DOW, S&P, and NASDAQ, while the Russell remains 100% bearish. But what concerns me is the fact that the DOW, S&P, and NASDAQ all finished with a hammer candlestick on the weekly charts. The hammer candlestick is often the sign of a reversal as it indicates a fight between bears and bulls, meaning bulls might be starting to lose control of the market, and bears might be ready to attack. So while the markets are 100% bullish, watch out for a possible reversal this week.
This week is jam packed with major economic news. The biggest of which is the FOMC meeting, interest rate announcement, and Jerome Powell press conference on Wednesday. The market is currently pricing in an 85% chance of a 0.25% interest rate hike, and a 15% chance of a pause. But what the market will really be listening for is any insight into whether the Fed will pause at their next meeting, and more importantly if they have any plans to cut rates later this year. Any indication Powell gives of dovishness could cause the markets to rally, while a firm hawkish stance could cause the markets to sell off.
Outside of the Fed meeting there is also a lot of important economic news this week, the biggest of which will be the March jobs report on Friday. Throughout the week we’ll also get other jobs data on Tuesday, Wednesday, and Thursday. And we also get the ISM manufacturing and services reports on Monday and Wednesday respectively. In addition we get the March construction data on Monday and the March factory orders on Tuesday.
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 remains busy this week with a number of major companies reporting earnings. The one stock everybody will be watching is Apple Thursday after the close. Apple is the last of the mega cap tech stocks to report, and after Microsoft, Alphabet, and Amazon all beat earnings, Apple is widely expected to beat earnings also.
Other Things to Know
First Republic Bank is collapsing, and the FDIC is currently taking bids for the bank. First Republic (ticker FRC) will be the largest bank collapse in 15 years (larger than Silicon Valley Bank), and the 2nd largest bank collapse in US history behind Washington Mutual. While the collapse of FRC is widely priced in to the markets already, it could trigger a further market sell-off if this collapse results in other banks collapsing as well – especially since the Federal Reserve predicts that the banking crisis will cause a recession by the end of this year.
For the rest of the stock market news that I didn’t have room to include in this newsletter, as well as my prediction for Apple earnings and the FOMC meeting, make sure to watch my latest video here: https://youtu.be/wkuLE0dnlyE.
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Wishing you the best of success trading this week,