Weekly Market Recap (Feb. 6 -10)
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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Thank you for joining us, and let's get started!
SUMMARY
Here are this week's highlights and what to look out for next:
1. The markets were negative, with the S&P 500 down 1.1%, the Dow Jones flat, and the Nasdaq -2.1%. Energy (+4.9%) and Health Care (-0.2%) were the best-performing sectors.
2. Comments from Fed officials influenced market sentiment, raising concerns that the central bank will maintain its hawkish stance for longer than expected.
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 344 companies from the S&P 500 index have released their Q4 results, with 69% beating estimates. Earnings are expected to fall 3% in Q4 2022 and rise 2% in 2023.
5. Earnings reports from The Coca-Cola Company, Cisco Systems, and Airbnb are scheduled for next week, along with the release of the Consumer Price Index (CPI) for January.
My take:
In last week's recap, I anticipated that we were due for some consolidation, and the markets delivered on that. On the plus side, we're still above the 2022 downtrend channel breakout level. However, the week felt like a déjà vu of 2022, with Energy being the only positive sector, riskier assets underperforming, higher volatility, and rapid intra-day reversals.
My outlook on the S&P 500 hasn't changed, and I'm still focused on critical support and resistance levels. On any retest, we must maintain the 4,000 breakout level and progressively clear the next resistances, beginning with 4,300. Any variations between these levels are simply noise.
The release of crucial economic data reports on CPI and Retail Sales data next week could be the catalyst for the index's next substantial move. The upcoming week could be volatile and risky, so be cautious with your investments!
PERFORMANCE RECAP
1. SP500 Sector Performance
Over the week, only 1 of the 11 S&P 500 sectors had achieved gains. Energy led the way, rising by 4.9%. By contrast, Communication Services was the weakest, falling by 5.6%.
Year-to-date, 8 sectors have seen positive results. Communication Services has been the most successful sector, with a 15% gain. On the other hand, Utilities have been trailing behind.
2. S&P 500 Weekly Heat Map
Over the last five trading days, only 34% of the stocks in the S&P 500 index have risen in value.
The best-performing stocks were:
Fortinet, Inc. (FTNT, 12%)
Everest Re Group, Ltd. (RE, 11%)
Cincinnati Financial Corporation (CINF, 9%)
Meanwhile, the worst-performing stocks were:
V.F. Corporation (VFC, -14%)
International Flavors & Fragrances Inc. (IFF, -16%)
Lumen Technologies, Inc. (LUMN, -25%)
In addition, 5 stocks within the S&P 500 reached a new 52-week low, while 24 set new highs, signaling momentum is clearly to 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
Last week, I anticipated the market would experience consolidation, which is what happened. When breaking out from a 1-year downtrend channel, it's common to see a backtest of the breakout level. My perspective remains unchanged, and as long as the index remains above the breakout level, 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 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. This week is Industrials and Financials turn to shine, and I encourage fellow momentum traders to investigate these sectors and the best-performing stocks within them.
For daily updates and content on momentum trading, follow me on Instagram.
EARNINGS RECAP
1. Earnings Season Summary
Close to 70% of the S&P 500 have released their Q4 2022 earnings, with 69% 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 -8%.
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 6 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, 38% of the respondents had a bullish outlook on the stock market, an 8-point increase from the previous week. The investors' bullish sentiment is at a 1-year high and in line with 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 rose from 4.2 to 4.4 and continues to show an improvement in sentiment among professional investors.
THE WEEK AHEAD
1. Economic Calendar
Next week, the spotlight will be on inflation, with the CPI due on Tuesday. The market expects year-over-year inflation to come in at 6.2%, down from 6.5% the previous month. We will also get an update on the consumer with the Retail Sales data for January.
2. Earnings Calendar
61 companies from the S&P 500, including The Coca-Cola Company, Cisco Systems, and Airbnb, 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.