Weekly Market Recap (Feb 19-23): NVIDIA Saves the Week and Propels Markets to Fresh New Highs
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 up for the week, with the S&P 500 up 1.7%, the Nasdaq 1.4%, and the Dow Jones 1.3%. Consumer Defensive (+2%) and Materials (+1.9%) were the best-performing sectors.
2. The S&P 500's long-term trend is positive. 5,100 is the next resistance, while 4,940 is support.
3. The earnings season is well underway, and 448 companies from the S&P 500 index have released their 4th quarter results, with 78% 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 (78) as measured by the Fear & Greed indicator, while VIX remains low at 14.
5. Earnings reports from Salesforce and Lowe's and the PCE price index are scheduled for next week.
My take:
This week was another rollercoaster, and NVIDIA's earnings essentially turned the week around. I'm still amazed by the rally's resilience despite the Fed's pushing back on rate cuts and the hot inflation reports.
You'll hear plenty of talk about reaching a market top, valuations stretching too thin, and sentiment becoming overly greedy and complacent. And while I'm among those anticipating—or even hoping for—a pullback, let's remember that what we think the market should be doing doesn't always translate into reality. And the truth is, we've been riding a strong uptrend since November, and calling for a (minor or major) top is premature until we lose a critical support.
On that note, the 4,920-4,940 zone has emerged as solid support this week and last. A breach here could pave the way for a retest of 4,800. However, until such a break occurs, it's important to remember that the trend is our friend, and the rally is still very much alive.
PERFORMANCE RECAP
1. S&P 500 Sector Performance
Over the week, all the 11 S&P 500 sectors have achieved gains. Consumer Defensive led the way and rose by 2%. By contrast, Energy was the weakest but still up 0.5%.
Year-to-date, 9 sectors have seen positive results. Communication Services has been the most successful sector, with a 10% gain. On the other hand, Real Estate has been trailing behind.
2. S&P 500 Top & Worst Performers
Last week, 68% of the stocks in the S&P 500 index have risen in value.
The best-performing stocks were:
Discover Financial Services (DFS, 10%)
Quanta Services, Inc. (PWR, 9%)
Garmin Ltd (GRMN, 9%)
Meanwhile, the worst-performing stocks were:
Enphase Energy Inc (ENPH, -13%)
Warner Bros. Discovery Inc (WBD, -15%)
Palo Alto Networks Inc (PANW, -23%)
In addition, 77 stocks within the S&P 500 reached a new 52-week high, while 4 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 Healthcare.
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 12% 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 73% of S&P 500 stocks are trading above their 200-day moving average (SMA). Meanwhile, 72% of stocks are trading above their 20-day SMA, increasing by 11 points compared to the previous week.
Trends: The trend on the 1-day and 4-hour charts is positive, with rising trend lines.
Key levels: The 5,100 zone proved good resistance on Friday, and we might consolidate just below. I have no concerns as long as we hold 4,920-40, where we found our footing this and the previous week. If we see a more substantial pullback, we could revist 4,800 and potentially 4,680.
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3. Momentum Analysis of the Week
This week's momentum analysis is about the auto manufacturing industry. Using a combination of performance metrics and technical indicators, I've developed a proprietary algorithm to rank 9 stocks from this industry. Based on this approach, I've identified Stellantis (STLA), Toyota Motors (TM), and Ferrari (RACE) as having the best relative momentum currently.
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 +14%.
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 4-quarter P/E ratio is 21.0, higher than the average over the past five and ten years.
2. Q4 Earnings Season Summary
448 companies from the S&P 500 index have released their Q4 2023 earnings, with 78% 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, 44% of the respondents had a bullish outlook on the stock market, up 2 points from the previous week. The bullish sentiment is above the historical average for the 16th 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 was stable at 6.6 and 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 78, or the “Extreme Greed” level, up from 77 last Friday.
THE WEEK AHEAD
1. Economic Calendar
This week is packed with significant macroeconomic data. All eyes will be on the Personal Consumption Expenditures (PCE) price index, the Federal Reserve's preferred inflation gauge. Investors will undoubtedly hope to avoid another report indicating elevated inflation levels. The Q4 Gross Domestic Product (GDP) updates, and the Purchasing Managers' Index (PMI) data are also on deck and will provide further insights about the economy's health.
2. Earnings Calendar
The earnings season continues next week, and 29 companies from the S&P 500, including Salesforce and Lowe’s, 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 Monster Beverage (MNST) this week. In this post, I break down key data points around Monster Beverage’s fundamentals, stock returns, analyst ratings, and past earnings performance to help you make informed investment decisions.
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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.
A win for the bulls this week