Weekly Market Recap (Aug 26-30): A Mixed Week, But All-Time Highs Are Just Inches Away
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 mixed this week, with the S&P 500 up 0.2%, the Nasdaq down -0.9%, and the Dow Jones up 0.9%. Financials (+3.0%) and Industrials (+1.7%) were the best-performing sectors.
2. The S&P 500's long-term trend is positive, and the short-term momentum is also positive. 5,670 is the next resistance, while 5,560 is support.
3. The earnings season is almost over and 493 companies from the S&P 500 index have released their Q2 results, with 79% beating estimates. Earnings are expected to be up 13% in Q2 2024 and 10% in 2024.
4. Market sentiment is at the "Greed" level (61) as measured by CNN’s Fear & Greed indicator, while VIX is at a low value of 15.
5. Earnings reports from Broadcom and Dollar Tree, as well as the Non-Farm Payroll report are scheduled for next week.
My take:
It was a choppy week as markets consolidated, which was to be expected after the sharp rally since the August 5th low. We started the week on the weak side as markets waited anxiously for Nvidia's earnings. And while Nvidia sold off post-earnings, the market managed to bounce and finish the week on a much better note.
Momentum remains mostly positive, and I found it encouraging that support at 5,660 held nicely. We're now just a few points away from all-time highs, but until we break out, we risk going back into chopping mode. The bulls will need to prove they can keep control, and finally set new record highs.
PERFORMANCE RECAP
1. S&P 500 Sector Performance
Over the week, 8 of the 11 S&P 500 sectors have achieved gains. Financials led the way, rising by 3%. By contrast, Technology was the weakest, falling by -1.6%.
Year-to-date, all the sectors have seen positive results. Communication Services has been the most successful sector, with a 20% gain. On the other hand, Consumer Cyclical has been trailing behind.
2. S&P 500 Top & Worst Performers
In the last 5 trading days, 71% of the stocks in the S&P 500 index rose in value.
The best-performing stocks were:
Best Buy Co. Inc. (BBY, 14%)
Cooper Companies, Inc. (COO, 12%)
GE Vernova Inc. (GEV, 10%)
Meanwhile, the worst-performing stocks were:
Bath & Body Works Inc (BBWI, -14%)
Super Micro Computer Inc (SMCI, -29%)
Dollar General Corp. (DG, -33%)
In addition, 125 stocks within the S&P 500 reached a new 52-week high, while 4 set new lows. Most of the highs this week came from the Financial sector.
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 9 and 30-week exponential moving averages (EMAs). To determine if the trend is strongly positive, I look for the following conditions (the 1st is the most important):
9-week EMA is above the 30-week EMA: 🟢
Price is trading above the 9-week EMA: 🟢
Price is trading above the 30-week EMA: 🟢
The 9-week EMA trend line is rising: 🟢
The 30-week EMA trend line is rising: 🟢
I also use the MACD as an additional tool to detect trend changes. The MACD is about to cross up its signal line, a typically bullish 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 4% over the past month, up 5% in the last three months, and is trading less than 1% away from its 52-week high.
Breadth: Market participation remains healthy in the long term, as 78% of S&P 500 stocks are trading above their 200-day moving average (SMA). Meanwhile, 91% of the stocks are trading above their 20-day SMA, up from 88% the previous week. A reading above 80% or below 20% typically indicates an overextended trend.
Trends: The trend on the 1-day and 4-hour charts is positive, with the index trading above its 21-period exponential moving average.
Key levels: The next resistance level is 5,670. On the other hand, the next support areas are at 5,560, followed by 5,500.
3. Momentum Analysis of the Week
This week's momentum analysis is about seasonality, as we are about to start the month of September. Since 1964, the S&P500 has been up 46% of the time in September, averaging a 0.6% loss.
EARNINGS RECAP
1. Q2 and Full Year 2024 Expected EPS & Revenue Growth
Q2 2024 earnings for the S&P 500 are expected to be up 13%. Excluding the energy sector, the figure is +14%.
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, 57% of earnings revisions made by analysts were to increase their outlook.
The forward 4-quarter P/E ratio is 21.5, higher than the average over the past five and ten years.
2. Q2 Earnings Season Summary
493 companies from the S&P 500 index have released their Q2 2024 earnings, with 79% posting higher EPS than expectations. This is in line with the previous four-quarter average of 79% and higher than 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, 51% of the respondents had a bullish outlook on the stock market, decreasing by 1 point from the previous week.
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 latest reading available of the indicator was 6.1, a slightly bullish 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 61, or a “Greed” level, up from 53 last Friday.
THE WEEK AHEAD
1. Economic Calendar
Next week will be a short trading week as U.S. markets will be closed on Monday due to the Labor Day holiday. On the economic front, the main focus will be the Non-Farm Payroll report, expected on Friday. Markets anticipate that the U.S. economy added 164k new jobs in August, up from 114k in July.
2. Earnings Calendar
Earnings season continues next week, and 6 companies from the S&P 500, including Broadcom and Dollar Tree, 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 my analysis of 1 stock reporting earnings in the coming days, focusing on implications for long-term investors. This week, I prepared an in-depth overview of Broadcom ($AVGO). In this post, I break down key data points around Broadcom’s fundamentals, stock returns, analyst ratings, and past earnings performance to help you make informed investment decisions. Check out the post and learn why I gave a “HOLD” rating to Broadcom.
That’s a wrap for this week’s recap! I hope it helped you understand the market better.
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My Weekly Stock
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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.