Weekly Market Recap (Jan 15-19): Can we Sustain the Breakout?
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 1.2%, the Nasdaq 2.3%, and the Dow Jones 0.7%. Technology (+4.1%) and Communication Serv. (+1.4%) were the best-performing sectors.
2. The long-term trend for the S&P 500 is positive. The index just posted a new all-time high and 4,800 is now support.
3. The earnings season is fully on, and 52 companies from the S&P 500 index have released their 4th quarter results, with 85% beating estimates. Earnings are expected to be up 5% in Q4 2023 and 11% in 2024.
4. Market sentiment remains positive, as measured by the Fear & Greed indicator, while VIX is at 13, increasing 5% this week.
5. Earnings reports from Tesla and Netflix and the PCE Price Index report are scheduled for next week.
My take:
We've just closed the second winning week of the year, ending on a high note. Since mid-December, the S&P 500 had been stuck in a tight trading range, bumping over the previous all-time highs. Typically, this situation can spell trouble, but despite the weak start of the week, the index surged and broke past the 4,800 mark.
While I mentioned in last week's recap that I was leaning towards an upward resolution, I didn't think we would break out until the Federal Reserve meeting at the end of the month.
Now what? A retest of the breakout level is quite common, and, if it happens, I'd like to see 4,800 hold. I'm still cautious as gains are concentrated in Tech, and short-term breadth is weak(er). But if the breakout holds and we see broader market participation, it would be hard not to be bullish, with 5,000 as the next magnet. As usual, let's stay focused and see how we navigate the next two weeks, packed with many critical earnings reports and the Fed meeting.
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PERFORMANCE RECAP
1. S&P 500 Sector Performance
Over the week, 5 of the 11 S&P 500 sectors have achieved gains. Technology led the way and rose by 4.1%. By contrast, Utilities was the weakest and fell by -3.7%.
Year-to-date, 4 sectors have seen positive results. Technology has been the most successful sector, with a 4% gain. On the other hand, Energy has been trailing behind.
2. S&P 500 Top & Worst Performers
Last week, 47% of the stocks in the S&P 500 index have risen in value.
The best-performing stocks were:
Advanced Micro Devices Inc. (AMD, 18%)
Applied Materials Inc. (AMAT, 11%)
Broadcom Inc (AVGO, 10%)
Meanwhile, the worst-performing stocks were:
Delta Air Lines, Inc. (DAL, -12%)
United Airlines Holdings Inc (UAL, -13%)
Discover Financial Services (DFS, -13%)
In addition, 50 stocks within the S&P 500 reached a new 52-week high, while 9 set new lows, indicating the momentum, while slowing down, remains to the upside.
The Technology sector has seen the most new highs this week, most of the lows were in Energy.
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 MACD as an additional tool to detect trend changes. The MACD is above its signal line, and a positive indication for the index.
2. S&P 500 Technical Analysis
Robust and 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 1% over the past month and 14% in the last three months, now trading just 0.1% 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, 45% of stocks are trading above their 20-day SMA, dropping from 47% the previous week, a clear watch out.
Trends: the 65-minute and 4-hour charts remain positive and have slightly improved compared to last week. We finally broke out of the 100-point range we have been stuck in since mid-December.
Key levels: I expect the 5,000 zone to be the next significant resistance. On the downside, 4,800 has become support, while 4,600 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 about the S&P 500 stocks trading the most above or below their 200-day moving average. The 200-day moving average is a powerful indicator that calculates the average price of a stock over the past 200 trading days. It acts like a "smoothing tool," reducing short-term market noise and offering a clearer understanding of the long-term trend.
EARNINGS RECAP
1. Q4 and 2024 Expected EPS & Revenue Growth
Q4 2023 earnings for the S&P 500 are expected to be up 5%. Excluding the energy sector, the figure is +8%.
The earnings are projected to be up 11% in 2024, higher than the 9% growth seen on average over the last decade. In the past 4 weeks, 49% of earnings revisions done by analyst were to increase their outlook.
The forward P/E ratio sit at 19.7, slightly higher than the average in the past 5 and 10 years.
2. Q4 Earnings Season Summary
52 companies from the S&P 500 index have released their Q4 2023 earnings, with 85% 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 of the survey are published every Wednesday.
According to the most recent AAII survey, 40% of the respondents had a bullish outlook on the stock market, a 9-point decrease from the previous week. The bullish sentiment, while sharply declining, remains above historical average.
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 rose from 5.4 to 5.5, the highest level since Nov’21.
3. CNN Fear & Greed Index (Technical)
The CNN Fear & Greed Index is a daily measure that analyzes seven different market indicators to assess the extent to which emotions are influencing investors' decisions. The index is scored out of 100 and categorize results into five stages: Extreme Fear, Fear, Neutral, Greed, and Extreme Greed.
The index closed at 73 or “Greed” level, up from 73 last Friday.
THE WEEK AHEAD
1. Economic Calendar
Next week, we're set to receive the Personal Consumption Expenditures (PCE) data, the Fed's favorite measure of inflation. The first reading of the Q4 GDP data will also be released. These reports will be closely scrutinized for their impact on future monetary policy decisions, especially with the Federal Reserve's meeting planned at the end of the month.
Below, you'll find the actual year-over-year Core PCE inflation rates for the past 12 months, as well as the performance of the S&P 500 on the day each of these reports was released.
2. Earnings Calendar
The Q4 earnings season is picking up steam next week, and 61 companies from the S&P 500, including Tesla and Netflix, 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" value and/or low growth expectations.
Stock Price Reactions to Earnings:
1-day Stock Return on Earnings is the stock performance on the day earnings were released.
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. This week, I prepared an in-depth overview of Tesla ($TSLA). In this post, I break down key data points around Tesla’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
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