Weekly Market Recap (Feb. 13 -17)
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 and volatile, with the S&P 500 down 0.3%, the Dow Jones flat, and the Nasdaq up 0.4%. Consumer Cyclical (+1.7%) and Utilities (1.2%) were the best-performing sectors.
2. Strong retail sales data and higher-than-anticipated inflation figures raised concerns the Federal Reserve will need to hike interest rates further.
3. The long-term trend for the S&P500 is turning bullish and could soon signal that the bear market is truly behind us. Regarding specific levels to watch, 4,300 is a significant resistance.
4. The earnings season is now well underway, and 405 companies from the S&P 500 index have released their Q4 results, with 67% beating estimates. Earnings are expected to fall 3% in Q4 2022 and rise 2% in 2023.
5. Earnings reports from Nvidia, Walmart, and Home Depot are scheduled for next week, along with the release of the FOMC meeting minutes and PCE Price Index for January.
My take:
The stock market remains in a state of consolidation, with elevated volatility. Notably, the Dow Jones index has recorded a flat weekly return for the third consecutive week. Extended periods of consolidation typically precede substantial upward or downward movements in the market, so you should exercise caution in the coming weeks as we may see sharp price movements.
Concerning the S&P 500, my outlook remains unchanged, and I continue to monitor critical support and resistance levels. We must maintain the 4,000 breakout level on any retest and gradually overcome subsequent resistances, starting with 4,300.
PERFORMANCE RECAP
1. SP500 Sector Performance
Over the week, 5 of the 11 S&P 500 sectors had achieved gains. Consumer Cyclical led the way, rising by 1.7%. By contrast, Energy was the weakest, falling by 6.3%.
Year-to-date, 7 sectors have seen positive results. Consumer Cyclical has been the most successful sector, with a 17% gain. On the other hand, Utilities have been trailing behind.
2. S&P 500 Weekly Heat Map
Over the last five trading days, 53% of the stocks in the S&P 500 index have risen in value.
The best-performing stocks were:
West Pharmaceutical Services, Inc. (WST, 16%)
Ecolab Inc. (ECL, 11%)
Paramount Global (PARA, 10%)
Meanwhile, the worst-performing stocks were:
EOG Resources, Inc. (EOG, -12%)
APA Corporation (APA, -13%)
Devon Energy Corporation (DVN, -16%)
In addition, 2 stocks within the S&P 500 reached a new 52-week low, while 26 set new highs, signaling momentum remains on the upside.
MARKET TRENDS & MOMENTUM
1. S&P 500 Long-Term Trend
The long-term trend for the S&P500 is turning bullish. 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 currently higher than its signal line, a positive indication for the index.
2. Short-term outlook and key levels
The market continues to experience consolidation, which is typically followed by significant upward or downward movements. Therefore, we should be prepared for sharp price movements shortly. My perspective on the S&P 500 remains unchanged, and as long as the index remains above the breakout level from the downtrend channel, I'm optimistic about its upward trajectory.
Regarding specific levels to watch, 4,300 is a significant resistance and would mark the official start of a new bull market. On the other hand, 4,000-50 (previous breakout level) is a key support range to defend at all costs.
3. Momentum Analysis of the Week
This week's momentum analysis is about the top 10 most oversold stocks in the S&P 500 based on the Relative Strength Index. RSI is a momentum oscillator used to measure the speed and change of price movements. RSI is considered overbought when it is above 70 and oversold when it is below 30. While I would never use RSI alone to make an investment decision, it can be a helpful tool to identify a potential change in trend.
For daily updates and content on momentum trading, follow me on Instagram.
EARNINGS RECAP
1. Earnings Season Summary
More than 80% of the S&P 500 have released their Q4 2022 earnings, with 67% posting higher EPS than expectations. However, this is lower than the previous four-quarter average of 76%.
2. Expected EPS & Revenue Growth
Analysts predict that earnings for the S&P 500 will decline by 3% in Q4 2022. Excluding the energy sector, the figure falls to -7%.
The earnings growth rate for 2023 is projected at 2%, lower than the 9% average seen over the last decade. Earnings are expected to increase year-over-year in 7 of the 11 sectors, with the Consumer Cyclical and Financials 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 to get 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, 34% of the respondents had a bullish outlook on the stock market, a 4-point decrease from the previous week. The investors' bullish sentiment is close to historical levels.
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 fell from 4.5 to 4.4 but continues to show an improvement in sentiment among professional investors.
THE WEEK AHEAD
1. Economic Calendar
The upcoming week will be shorter due to the markets being closed on Monday. The focus will be on the Fed again as they release the FOMC meeting minutes on Wednesday, providing insights into the central bank's future policy. We will also receive an update on inflation with the PCE Price index, which is the Fed's preferred measure.
2. Earnings Calendar
62 companies from the S&P 500, including Nvidia, Walmart, and Home Depot, are set to report their quarterly earnings next week.
3. Next Week’s Earnings Watchlist
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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.