Weekly Market Recap (Apr 1-5): Q2 Starts With A Red Week. Just A Dip or A Deeper Trend Shift?
Everything you need to know about last week's markets performance and what to expect next.
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SUMMARY
Here are this week's highlights and what to look out for next:
1. The markets were down for the week, with the S&P 500 down -1.0%, the Nasdaq -0.8%, and the Dow Jones -2.3%. Energy (+3.9%) and Communication Serv. (+1.1%) were the best-performing sectors.
2. The S&P 500's long-term trend is positive. 5,300 is the next resistance, while 5,180 and 5,050 are support.
3. The earnings season is just starting, and 20 companies from the S&P 500 index have released their Q1 results, with 90% beating estimates. Earnings are expected to be up 5% in Q1 2024 and 10% in 2024.
4. Market sentiment is at the "Greed" level (60) as measured by the Fear & Greed indicator, while VIX is at a medium value of 16.
5. Earnings reports from JPMorgan and Blackrock, as well as the CPI and PPI report, are scheduled for next week.
My take:
Echoing the start of Q1, we've begun this quarter with a red week. It was a challenging week to trade, marked by many fakeouts and sharp reversals. Last week, I highlighted that breadth indicators suggested the need for a pause in the rally. Now that we've seen it, the real question is whether this downturn will have legs.
I'll admit, if I had written this on Thursday, my response would have been a firm yes. The market looked scary as the S&P 500 lost major support at 5,180 and closed below a key trend line (the 21 EMA). However, we saw another positive reversal on Friday, so I'm inclined to give the bulls the benefit of the doubt for now.
Looking ahead, I'm still keeping an eye on 5,180 as the critical level for next week. We've been trapped in a 100-point range for the last two weeks, and I believe we will get some resolution soon, maybe as early as next week, with CPI data and the start of a new earnings season.
PERFORMANCE RECAP
1. S&P 500 Sector Performance
Over the week, 2 of the 11 S&P 500 sectors have achieved gains. Energy led the way, rising by 3.9%. By contrast, Health Care was the weakest, falling by -3%.
Year-to-date, 9 of the sectors have seen positive results. Energy has been the most successful sector, with a 17% gain. On the other hand, Real Estate has been trailing behind.
2. S&P 500 Top & Worst Performers
Last week, 23% of the stocks in the S&P 500 index rose in value.
The best-performing stocks were:
GE Aerospace (GE, 12%)
Newmont Corp (NEM, 11%)
Marathon Petroleum Corp (MPC, 9%)
Meanwhile, the worst-performing stocks were:
Intel Corp. (INTC, -12%)
Ulta Beauty Inc (ULTA, -15%)
Lamb Weston Holdings Inc (LW, -25%)
In addition, 79 stocks within the S&P 500 reached a new 52-week high, while 7 set new lows, indicating the momentum remains on the upside. Most of the highs this week were coming from the Financial sector, while Healthcare has seen the most lows.
MARKET TRENDS & MOMENTUM
1. S&P 500 Long-Term Trend
The long-term trend for the S&P 500 is positive. I base this evaluation on the weekly chart's 9 and 30 exponential moving averages (EMAs). To determine if the trend is strongly positive, I look for the following conditions (the 1st is the most important):
EMA9 is above the EMA30: 🟢
Price is trading above the EMA9: 🟢
Price is trading above the EMA30: 🟢
EMA9 is rising: 🟢
EMA30 is rising: 🟢
I also use the MACD as an additional tool to detect trend changes. The MACD is above its signal line, a positive indication for the index.
2. S&P 500 Technical Analysis
Healthy bull markets typically see the index set several new highs, broad market participation, and ascending trend lines. That's why I've created a four-part scorecard – a straightforward tool to give us a comprehensive view of these essential health indicators.
Momentum: The index is up 2% over the past month and 11% in the last three months, and is trading 1% away from its 52-week high.
Breadth: Market participation remains healthy in the long term, as 76% of S&P 500 stocks are trading above their 200-day moving average (SMA). Meanwhile, 50% of stocks are trading above their 20-day SMA, increasing by 32 points compared to the previous week. After being overheated last week, the indicator offers a mixed signal.
Trends: The 1-day trend remains primarily positive, but the 4-hour chart shows signs of weakness.
Key levels: The next resistance level could be 5,300, and we could see another attempt as long as we trade above 5,180. If we don’t hold that level, the next support area is 5,050, followed by 4,920-40, where we found our footing in February.
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3. Momentum Analysis of the Week
This week's momentum analysis focuses on the S&P 500 sectors' trends. Using a combination of performance metrics and technical indicators, I've developed a proprietary algorithm to rank these sectors and identify potential outperformers. Based on this approach, I've identified the Communication Services and Industrial sectors as having the best relative momentum.
EARNINGS RECAP
1. Q1 and Full Year 2024 Expected EPS & Revenue Growth
Q1 2024 earnings for the S&P 500 are expected to be up 5%. Excluding the energy sector, the figure is +8%.
Earnings are projected to grow by 10% in 2024, higher than the 9% growth seen on average over the last decade. In the past four weeks, 49% of earnings revisions made by analysts were to increase their outlook.
The forward 4-quarter P/E ratio is 20.5, higher than the average over the past five and ten years.
2. Q1 Earnings Season Summary
20 companies from the S&P 500 index have released their Q1 2024 earnings, with 90% posting higher EPS than expectations. This is higher than the previous four-quarter average of 78% and the historical average of 67%.
MARKET SENTIMENT
Measures of investor sentiment can be helpful as they provide insight into the views and opinions of professional or individual investors. However, it's important to note that these measures are not perfect predictors of market movements. They should be combined with other indicators and analysis tools for a complete market picture.
1. AAII Sentiment Survey (Individual Investors)
The American Association of Individual Investors (AAII) conducts a weekly survey among its members to gauge their expectations for the stock market over the next six months. The results are published every Wednesday.
According to the most recent AAII survey, 47% of the respondents had a bullish outlook on the stock market, down 3 points from the previous week. The bullish sentiment has been above the historical average for 22 weeks in a row.
2. BofA Bull & Bear Indicator (Institutional Investors)
The Bank of America Bull-Bear Indicator is a proprietary measure of investor sentiment developed by Bank of America. It is based on a survey of fund managers and institutional investors, and it tracks the percentage of respondents who are bullish, bearish, or neutral on the stock market. Results are published in the form of a score ranging from 0 (extremely bearish) to 10 (extremely bullish)
The indicator fell from 5.8 to 5.3, an average sentiment reading.
3. CNN Fear & Greed Index (Technical)
The CNN Fear & Greed Index is a daily measure that analyzes seven market indicators to assess how emotions influence investors' decisions. The index is scored out of 100 and categorizes results into five stages: Extreme Fear, Fear, Neutral, Greed, and Extreme Greed.
The index closed at 60, or the “Greed” level, down from 71 last Friday.
THE WEEK AHEAD
1. Economic Calendar
We have a critical week ahead with several key inflation updates on the agenda, including the Consumer Price Index (CPI) and Producer Price Index (PPI). Additionally, the Federal Reserve is set to release the minutes from their last meeting, providing deeper insights into the central bank's policy outlook.
2. Earnings Calendar
The earnings season starts next week, and 10 companies from the S&P 500, including JPMorgan and Blackrock, are expected to release their quarterly results.
3. Next Week’s Earnings Watchlist
Below is my watchlist of stocks reporting week next week, along with several key indicators I like to review:
Stock Indicators:
Stock performance in the last 3 months.
RSI, where a reading of 70 indicates overbought status and a reading of 30 oversold.
PE ratio, where a reading below 25 indicates a "cheap" valuation and/or low growth expectations.
Stock Price Reactions to Earnings:
1-day Stock Return on Earnings is the stock performance on the earnings release date.
Implied volatility is the expected 1-day stock change after earnings are released, as assessed by the options markets.
Every week, I share a deep dive into 1 stock reporting earnings in the coming days. This week, I prepared an in-depth overview of Delta Air Lines (DAL). In this post, I break down key data points around Delta’s fundamentals, stock returns, analyst ratings, and past earnings performance to help you make informed investment decisions.
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My Weekly Stock
DISCLAIMER
The information provided in this newsletter is for informational purposes only and should not be taken as financial advice. Any investments or decisions made based on the information provided in this newsletter are the reader's sole responsibility. We recommend that readers conduct their own research and consult a qualified financial professional before making investment decisions. The author does not assume any responsibility for any losses or damages arising from using the information provided in this newsletter.
I vote for deeper 😂
Let's hope we can buy the dip a little bit longer.