Weekly Market Recap (Aug. 7-11)
Everything you need to know about last week's markets performance and what to expect next
Dear subscribers,
Welcome to our weekly market recap!
Navigating the markets can be overwhelming, but I'm here to provide you with the latest updates and actionable insights to help you succeed. Whether you're an experienced investor or just starting out, my recap has something for everyone.
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SUMMARY
Here are this week's highlights and what to look out for next:
1. The markets were mixed for the week, with the S&P 500 down 0.3%, the Dow Jones up 0.6%, and the Nasdaq down 1.9%. Energy (+3.4%) and Healthcare (+2.5%) were the best-performing sectors.
2. Despite better-than-expected inflation data, the stock indices posted a mixed week after Moody’s downgraded several US banks.
3. The long-term trend for the S&P 500 is positive, and the next significant resistance is at 4,600, while support is at 4,450.
4. The Q2 earnings season is well underway, and 456 companies from the S&P 500 index have already released their 2nd quarter results, with 79% beating estimates so far. Earnings are expected to be down 4% in Q2 2023 and up 2% in 2023.
5. Earnings reports from Walmart and Home Depot are scheduled for next week, as is an update on the consumer segment with the Retail Sales data for July.
My take:
Another week of frustration for swing traders as there was no clear direction and sharp reversals during the day. Thursday's fake breakout was especially painful when good inflation news drove a strong rally in the morning, only to fall back later in the day.
In the short term, the market appears stuck in a downtrend/consolidation phase, seemingly influenced by technical factors such as seasonality and a failure to break resistance. Next week, I will be watching for a clearer market direction. Notably, I'll be closely watching the S&P 500 to maintain the 4450 level and break above 4500 first, and then 4600. If not, we might see more weakness in the coming days.
As always, focusing on the longer time frame is beneficial. From that perspective, I believe that the S&P 500 will eventually test its all-time high at 4,800 in the coming months. However, the last three weeks have shown that the journey to new highs might be challenging.
PERFORMANCE RECAP
1. SP500 Sector Performance
Over the week, 7 of the S&P 500 sectors have achieved gains. Energy led the way and rose by 3.4%. By contrast, Technology was the weakest, and fell by 2.5%.
Year-to-date, 8 sectors have seen positive results. Communication Services has been the most successful sector, with a 40% gain. On the other hand, Utilities has been trailing behind.
2. S&P 500 Weekly Heat Map
Over the last week, 48% of the stocks in the S&P 500 index have risen in value.
The best-performing stocks were:
Eli Lilly and Company (LLY, 18%)
Axon Enterprise, Inc. (AXON, 17%)
Akamai Technologies, Inc. (AKAM, 13%)
Meanwhile, the worst-performing stocks were:
International Flavors & Fragrances Inc. (IFF, -20%)
Tapestry, Inc. (TPR, -17%)
Insulet Corporation (PODD, -14%)
In addition, 40 stocks within the S&P 500 reached a new 52-week high, while 21 set new lows, indicating the momentum is to the upside.
The following are the top stocks, ranked by market size, that reached a new high or low in the last 5 days:
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 three conditions:
Price is trading above the EMA9 and EMA30: 🟢
EMA9 is above the EMA30: 🟢
Both moving averages are rising: 🟢
I also use MACD as an additional tool to detect trend changes. The MACD is above its signal line, a positive indication for the index.
2. Short-term outlook and key levels
As I anticipated, market volatility continued this week, and we saw a test of the 4,450 support. We must continue holding that support next week while sustainably breaking back above 4,500. After that, a breakthrough above 4,600 would signal a resumption of the upward trajectory, setting the stage for potentially new all-time highs.
In fact, the natural target in the coming months would be the S&P 500's all-time high of 4,800. On the other hand, if the index falls below June's breakout level of 4,280-4,300, it would be a significant setback for the bullish case.
3. Momentum Analysis of the Week
This week's momentum analysis is about the S&P 500 sectors' trends. I employ various performance metrics and technical indicators, which are then processed by my proprietary algorithm. I use this model here to rank the different S&P 500 sectors and identify those likely to outperform. Based on this approach, I've identified the Communication Services and Industrials sector as having the best relative momentum. I encourage fellow momentum traders to investigate these sectors and their best-performing stocks.
For daily updates and content on the stock market, follow me on Instagram.
EARNINGS RECAP
1. Earnings Season Summary
456 companies from the S&P 500 index have released their Q2 2023 earnings, with 79% posting higher EPS than expectations. This is higher than the previous four-quarter average of 73%, and the historical average of 66%.
2. Expected EPS & Revenue Growth
Q2 2023 earnings for the S&P 500 are expected to be down 4%. Excluding the energy sector, the figure is +3%.
The earnings are projected to be up 2% in 2023, lower than the 9% growth seen on average over the last decade. Earnings are expected to increase year-over-year in 8 of the 11 sectors, with the Consumer Cyclical and Communication Services sectors leading the way. On the other hand, the Energy and Materials sectors are projected to see the worst decline.
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. Individual Investors (AAII)
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 of the survey are published every Wednesday.
According to the most recent AAII survey, 45% of the respondents had a bullish outlook on the stock market, a 4-point decrease from the previous week. The investors' bullish sentiment was above the average for the 10th consecutive week.
2. Institutional Investors (BofA Bull & Bear Indicator)
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 was stable at 4.1, a neutral reading.
THE WEEK AHEAD
1. Economic Calendar
The week ahead will focus on the consumer, with the release of the Retail Sales data for July on Tuesday. Keep an eye also for the Fed FOMC Meeting Minutes, which might provide more insights on the central bank’s actions in the coming months.
2. Earnings Calendar
The earnings season continues in the week ahead, and 17 companies from the S&P 500, including Walmart and Home Depot, 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 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" value and/or low growth expectations.
Implied volatility is the expected 1-day stock change after earnings are released, as assessed by the options markets.
It is helpful to analyze these indicators to understand better the stocks before their earnings.
Every week, I share a deep dive into one stock reporting earnings in the coming days. This week, I prepared an in-depth overview of Target Corporation (TGT). In this post, I break down key data points around Target Corporation’s fundamentals, stock returns, analyst ratings, and past earnings performance to help you make informed investment decisions.
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Have a great week!
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.
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