Weekly Market Recap (Feb 12-16): Can the Bears Finally Follow Through? NVIDIA Earnings Could Hold the Key
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 0.4%, the Nasdaq down 1.3%, and the Dow Jones down 0.1%. Energy (+2.7%) and Materials (+2.4%) were the best-performing sectors.
2. The S&P 500's long-term trend is positive. 5,000 remains the critical level to monitor next week.
3. The earnings season is well underway, and 395 companies from the S&P 500 index have released their 4th quarter results, with 80% beating estimates. Earnings are expected to be up 10% in Q4 2023 and 10% in 2024.
4. Market sentiment is at the "Extreme Greed" level (77) as measured by the Fear & Greed indicator, while VIX remains low at 14.
5. Earnings reports from NVIDIA and Walmart and the minutes from the last FED meeting are scheduled for next week.
My take:
The S&P 500 finally broke its winning streak, posting its only 2nd red week in the last 16. Having said that, it was a mild decline, considering we just had 2 hot inflation reports this week. And the index still managed to close back above the 5,000 mark.
NVIDIA is set to report earnings next week, which I view as the most critical report of this earnings season. Given its track record and valuation levels, NVIDIA is under pressure to exceed expectations. And this report is poised to have market-wide implications.
Although I see some signs of weakness on lower timeframes, I'm cautious about jumping to conclusions without a significant support level being breached. In this context, the week’s low at 4,920 is one to watch, but 4,800 is the ultimate support we don't want to see breached.
While I believe a pullback would be healthy, as long as the index remains firmly above 5,000 and continues to set new highs, we must acknowledge that the rally is still very much in play.
PERFORMANCE RECAP
1. S&P 500 Sector Performance
Over the week, 7 of the 11 S&P 500 sectors have achieved gains. Energy led the way and rose by 2.7%. 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 9% gain. On the other hand, Real Estate has been trailing behind.
2. S&P 500 Top & Worst Performers
Last week, 58% of the stocks in the S&P 500 index have risen in value.
The best-performing stocks were:
Diamondback Energy Inc (FANG, 18%)
Trimble Inc (TRMB, 15%)
Viatris Inc (VTRS, 12%)
Meanwhile, the worst-performing stocks were:
West Pharmaceutical Services, Inc. (WST, -12%)
Adobe Inc (ADBE, -13%)
Akamai Technologies Inc (AKAM, -15%)
In addition, 100 stocks within the S&P 500 reached a new 52-week high, while 9 set new lows, indicating the momentum remains on the upside.
The Industrials sector has seen the largest number of new highs this week, while most of the lows were in Utilities.
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 5% over the past month and 11% in the last three months, now trading just 1% shy of its 52-week high.
Breadth: Market participation remains healthy in the long term, as 69% of S&P 500 stocks are trading above their 200-day moving average (SMA). Meanwhile, 61% of stocks are trading above their 20-day SMA, increasing by 4 points compared to the previous week.
Trends: The 1-day chart remains positive, while some weakness is visible on the 4-hour chart.
Key levels: The critical level to monitor next week remains 5,000. Regarding a downside scenario, 4,800 is support, while 4,680, early Jan's low, is the level to hold if we see a more substantial pullback.
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3. Momentum Analysis of the Week
This week's momentum analysis is a benchmark analysis of 4 stocks from the Restaurant industry. My favorite? Chipotle Mexican Grill ($CMG). Its impressive margins and robust growth performance make it particularly appealing. However, $CMG has already seen significant gains, so identifying an optimal entry point becomes crucial for new investors.
Additionally, $YUM caught my attention and seems poised for a breakout on the weekly chart, potentially offering a more favorable risk-reward profile compared to $CMG.
EARNINGS RECAP
1. Q4 and 2024 Expected EPS & Revenue Growth
Q4 2023 earnings for the S&P 500 are expected to be up 10%. Excluding the energy sector, the figure is +13%.
The earnings are projected to grow by 10% in 2024, higher than the 9% growth seen on average over the last decade. In the past 4 weeks, 50% of earnings revisions done by analyst were to increase their outlook.
The forward P/E ratio is 20.7, higher than the average over the past five and ten years.
2. Q4 Earnings Season Summary
395 companies from the S&P 500 index have released their Q4 2023 earnings, with 80% posting higher EPS than expectations. This is higher than the previous four-quarter average of 76% 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, 42% of the respondents had a bullish outlook on the stock market, down 7 points from the previous week. The bullish sentiment is above the historical average for the 15th week 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 6.8 to 6.6, still showing bullish sentiment.
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 77, or the “Extreme Greed” level, down from 78 last Friday.
THE WEEK AHEAD
1. Economic Calendar
The upcoming week will be short as US markets are closed on Monday. It will be quiet on the economic front, with the highlight being the minutes from the last Federal Reserve meeting. These minutes will offer additional insights into the Fed's discussions and the potential path for interest rates, providing valuable context for investors regarding future monetary policy directions.
2. Earnings Calendar
The earnings season continues next week, and 33 companies from the S&P 500, including NVIDIA and Walmart, 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.
It is helpful to analyze these indicators to understand better the stocks before their earnings.
Every week, I share a deep dive into 1 stock reporting earnings in the coming days. I prepared an in-depth overview of NVIDIA Corporation ($NVDA) this week. In this post, I break down key data points around NVIDIA’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
DISCLAIMERS
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.
You’re pumping CMG too? Jesus.
So, we’re at $211 per share on S&P earnings down significantly from estimates earlier this year. But yea, bull market…