We can finally start discussing when the stock market will recover now that we’ve had two weeks in a row without a bank failure. Luckily we can use some fairly accurate historical data to determine when the stock market will recover. But trying to perfectly time the bottom is difficult. And with the stock market remaining in a news-driven cycle, this week’s relative lack of news should keep the stock market fairly range bound.
Last Week Recap
Despite a very volatile week last week, with multiple 2% moves on the day, the stock market finished the week fairly flat with only slight gains in most of the major indexes. What has been most notable though is the divergence between the NASDAQ and the Russell. While the NASDAQ is up 6% so far in March, the Russell is down over 8% this month. Such a massive difference is extremely rare, and is indicative of just how much money flowed out of the small cap regional banks and into the mega cap tech stocks this month. In fact, the majority of the gains in the stock market this month can be attributed to just a few mega cap tech stocks. Those mega cap tech stocks are now overbought, and the concern is that as the banking fears subside, money will flow back out of the mega cap tech stocks and into the regional banks once again. This will have the effect of dropping the NASDAQ while raising the Russel – the exact opposite move we’ve seen over the past two weeks. This led to a large amount of put buying on stocks such as Apple, Tesla, and Nvidia last week.
The fear and greed index (https://www.cnn.com/markets/fear-and-greed) increased last week as bank fears subsided. We are now out of the extreme fear stage and back into the fear stage. The rise in the fear and greed index might seem like an indication of the bottom, pointing to stocks going back up. But don’t be fooled. The fear and greed index is still solidly at the fear level, meaning investors are still on edge, and the stock market could continue to fall.
Market fear can also be seen as elevated, but falling, in the VIX. The VIX closed Friday at 21.74. While this is significantly lower than last week’s close, keep in mind that any number above 20 represents fear and increased volatility in the stock market. So we could be looking at a repeat of last week, where the market ends the week fairly flat, but each day is met with intraday moves greater than 2%.
Each market index is now showing different technicals on the daily charts. As we remain in a news-driven environment, technical analysis becomes less reliable. At any moment, news could be released that completely changes the market direction. So don’t rely on the technicals too much until the news cycle settles down and volatility starts to leave the market. For example, while the NASDAQ is extremely bullish with all of the technicals pointing to bullishness, the Russel is extremely bearish with all of the technicals pointing to bearishness. The S&P and DOW are somewhere in between with some technicals bullish and some bearish. So trying to determine market direction based upon the technicals is impossible right now.
The weekly charts are almost identical to the daily charts. The DOW and S&P have mixed technicals, while the NASDAQ is 100% bullish, and the Russell 2000 is 100% bearish.
After last week’s major FOMC meeting news (watch here if you missed it), this week should be fairly quiet, with the only major news announcement on Friday. On Friday the Personal Consumption Expenditures Index (PCE) inflation data will be released at 8:30am, or one hour before the market opens. PCE is the Federal Reserve’s preferred measure of inflation, and expectations are for a decline just like we saw in CPI and PPI earlier this month. The PCE inflation data could be the deciding factor in whether or not the stock market finishes the week green or red.
In addition to the PCE data on Friday, we also have numerous Fed members speaking this week which could move the markets as well. Governor Jefferson speaks Monday after the close, Michael Barr speaks Tuesday at 10am and Wednesday at 10am, and both Governor Cook and Governor Waller speak Friday after the close.
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
While earnings season doesn’t officially kick off until April 14 with JPMorgan Chase, there are still quite a few earnings this week. The most notable earnings this week are Walgreens on Tuesday and RH on Wednesday.
Other Things to Know
Even though fear is leaving the stock market, the reason is because the market believes the Fed will cut rates four times this year. What’s remarkable is that Jerome Powell was extremely clear at Wednesday’s Fed meeting that the Federal Reserve would NOT cut rates this year. And even though the markets are greedy for rate cuts, they seem to be ignoring the reason why the Fed would cut rates – a recession. In addition, there are numerous problems banks are still going to have to overcome this year, including a commercial real estate collapse. Some estimates put the number of bank collapses this year as high as 200. If you want to gain a better understanding about the issues still facing the banks, and how the stock market will actually perform this year, watch my latest video here: https://youtu.be/9WOcd_n516Q.
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Wishing you the best of success trading this week,