We could see the first ban on short selling since 2008 as the US government panics over more banks collapsing. And if the banking crisis wasn’t enough, a strong labor market and stubbornly high inflation is causing bond and futures traders to increase their bets that Federal Reserve will continue to raise interest rates. On top of all of that, 30 S&P 500 companies are reporting earnings this week, with over 1,000 publicly traded companies in total reporting earnings this week. It’s going to be another volatile week in the markets, so here’s what you need to know before the stock market opens on Monday.
Last Week Recap
Despite some extreme bullishness on Friday, the markets finished the weekly mostly down. The one outlier was the NASDAQ which finished up 0.10% for the week. The main reason for Friday’s bullishness was not the strong Apple earnings though. The largest contributor was actually the SEC announcing an investigation in to the short selling of banks, combined with JP Morgan saying that the SEC might ban short selling like they did in 2008. This caused shorts to cover their borrows on Friday, which in turn added significant buying pressure to the market and generated a 2% gain on all of the major indices on Friday. Shockingly, Friday’s much strong than expected jobs report kept the market from rising even further, as traders started pricing in the possibility for another Fed interest rate hike in June. More information about what happened last week and how it will affect the market this week was discussed in Sunday night’s video here: https://youtu.be/1FJM7ZErzko
The fear and greed index (https://www.cnn.com/markets/fear-and-greed) remains in the greed stage for a 3rd week in a row. Through Thursday it was hovering in the neutral stage, but after Friday’s rally we saw it rise back up to greed. But because Friday was a unique situation, and because the Fear and Greed index was sitting in the neutral stage for most of the week, there’s a good chance we could see it drop back down into the neutral stage this week.
The volatility index (VIX) rose for most of the week and even finished Thursday above 20, indicating bearishness. But Friday’s sudden rise in the market caused the VIX to crash and finish the week at 17.19, which is bullish. I wouldn’t buy too much into Friday’s drop though, given the unique situation of the market on Friday with massive short seller covering. I think the rise in the VIX every day up until Friday is the direction we’ll see the VIX continue to go, and if that does in fact happen, it means we could be looking at a market sell-off this week.
Through Thursday the markets were looking quite bearish. Then Friday’s sudden rally flipped everything and added some bullishness to the markets. As a result, the markets ended the week mixed. While the MACD on all 4 major indices is bearish, the RSIs are all bullish (except for the Russell), and Friday’s candle closed above all of the EMAs (except for the Russell). The Russell saw the RSI finish the week neutral, and while Friday’s candle did close above the 10 day EMA, it did not close above the 21 day EMA. With these mixed technicals, it’s hard to determine how the market might move this week.
The weekly charts remain 100% bullish on the DOW, S&P, and NASDAQ, and 100% bearish on the Russell. But the DOW, S&P, and NASDAQ all finished with a hammer candlestick for the 2nd week in a row 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 (except for the Russell), we still might get a turn to the downside this week.
Despite the markets pricing in a 96% chance of a pause from the Federal Reserve on Thursday, that dropped to only an 89% chance on Friday after Friday’s hotter than expected jobs report. And with both the Consumer Price Index and Producer Price Index inflation data coming out this week, those bets that the Fed might actually raise rates again in June might increase further. The CPI data comes out on Wednesday, and the PPI is released on Thursday.
And with the Federal Reserve now out of its blackout period, quite a few Fed members are speaking this week. In fact, we have Federal Reserve members speaking every day this week except Wednesday.
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 continues this week with over 1,000 companies reporting earnings and 30 S&P 500 companies reporting. The most notable earnings this week are PayPal, Palantir, and Lucid on Monday. Then Fisker, Nikola, Airbnb, Rivian, Oxy, and Twillio all reporting on Tuesday. Then Wednesday could be the biggest market mover with Roblox in the morning, then Disney and The Trade Desk after the close. Finally on Thursday we’ve got JD and Fiverr.
Despite a few mega cap tech stocks taking the headlines over the past two weeks, most companies have not reported good earnings. Signs are increasing that we are headed for a recession, if we’re not in one already.
Other Things to Know
PacWest reported last week that they were in trouble and looking for a buyer. So despite the government’s insistence that the banking sector is sound and resilient, that doesn’t seem to be the case. Be on the lookout for more news of bank collapses this week, which could send the stock market falling further.
We also have the debt ceiling limit coming up soon, with Janet Yellen moving the doomsday date that the Treasury will run out of funds up from the first week of June to “by June”. By my calculations, the US will be out of money in the 3rd week of May. The closer we get to that date, the more the stock market could sell off over fears of a US default or credit rating downgrade.
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