Weekly Market Recap (Jan 29 - Feb 2): What Will Halt this Rally? The 5,000 Level Looms!
Everything you need to know about last week's markets performance and what to expect next
Dear subscribers,
Welcome to my Weekly Market Recap.
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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 1.4%, the Nasdaq 1.1%, and the Dow Jones 1.4%. Consumer Cyclical (+3.2%) and Communication Services (+2.6%) were the best-performing sectors.
2. The S&P 500's long-term trend is positive. The next resistance is at 5,000, while 4,800 is support.
3. The earnings season is well underway, and 230 companies from the S&P 500 index have released their 4th quarter results, with 80% beating estimates. Earnings are expected to be up 8% in Q4 2023 and 10% in 2024.
4. Market sentiment is at the "Greed" level (67) as measured by the Fear & Greed indicator, while VIX remains low at 14.
5. Earnings reports from Eli Lilly and PepsiCo, and the PMI data are scheduled for next week.
My take:
This week unfolded with its fair share of challenges, just as expected. The market didn't start on the best note, with Google releasing "good-but-not-great" earnings. The situation compounded on Wednesday when the Fed signaled that rate cuts in March weren't on the table yet. However, the week took a positive turn later, notably behind impressive earnings from Amazon and Meta. It helped secure a fourth consecutive week of gains and, yet again, a new all-time high for the S&P 500.
Now what? In the short term, I see the index continuing its push towards the 5,000 mark. The reaction at this critical level will be pivotal. Despite (or because of?) the strong price action observed in the past three months, I anticipate a pullback that could take us back to the 4,400-4,500 range or even below it. However, it's crucial to remember that the trend is our ally. Therefore, I'm holding off on any preemptive moves until a clear shift in momentum is evident.
PERFORMANCE RECAP
1. S&P 500 Sector Performance
Over the week, 9 of the 11 S&P 500 sectors have achieved gains. Consumer Cyclical led the way and rose by 3.2%. By contrast, Energy was the weakest and fell by -0.9%.
Year-to-date, 6 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, 55% of the stocks in the S&P 500 index have risen in value.
The best-performing stocks were:
Meta Platforms Inc (META, 21%)
Edwards Lifesciences Corp (EW, 18%)
Corteva Inc (CTVA, 16%)
Meanwhile, the worst-performing stocks were:
C.H. Robinson Worldwide, Inc. (CHRW, -15%)
Charter Communications Inc. (CHTR, -15%)
MarketAxess Holdings Inc. (MKTX, -19%)
In addition, 105 stocks within the S&P 500 reached a new 52-week high, while 6 set new lows, indicating the momentum remains on the upside.
The Industrials sector has seen the largestnumber of new highs this week, while most of the lows were in Materials.
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 5% over the past month and 17% in the last three months, now trading just 0.6% shy of its 52-week high.
Breadth: Market participation remains healthy in the long term, as 70% of S&P 500 stocks are trading above their 200-day moving average (SMA). Meanwhile, 57% of stocks are trading above their 20-day SMA, flat compared to the previous week.
Trends: The 4-hour and 1-day chart remains primarily positive. The index broke a new all-time high again this week.
Key levels: I expect the 5,000 zone to be the next significant resistance. On the downside, 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 about seasonality, as we just started the month of February. Since 1964, the S&P500 has been up 54% of the time in February, averaging a 0% return.
EARNINGS RECAP
1. Q4 and 2024 Expected EPS & Revenue Growth
Q4 2023 earnings for the S&P 500 are expected to be up 8%. Excluding the energy sector, the figure is +11%.
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, 49% of earnings revisions done by analyst were to increase their outlook.
The forward P/E ratio is 20.3, slightly higher than the average over the past five and ten years.
2. Q4 Earnings Season Summary
230 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, 49% of the respondents had a bullish outlook on the stock market, a 10-point increase from the previous week. The bullish sentiment is largely above the 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 6.0 to 6.1, the highest level in 2.5 years, behind continuous stock inflows.
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 67, or the “Greed” level, down from 76 last Friday.
THE WEEK AHEAD
1. Economic Calendar
The economic calendar is relatively light next week. On the agenda is the Purchasing Managers' Index (PMI). This index provides insights into the manufacturing sector's health, directly reflecting purchasing managers' sentiments about the economic outlook.
2. Earnings Calendar
Another busy earnings week is ahead, and 76 companies from the S&P 500, including Eli Lilly and PepsiCo, 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 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 Disney ($DIS) this week. In this post, I break down key data points around Disney’s fundamentals, stock returns, analyst ratings, and past earnings performance to help you make informed investment decisions.
Check out my Instagram page to see this analysis
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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.
Thanks, this is awesome ! Will be returning weekly for these reports. You are doing the community a solid, and I personally greatly admire the work you do!
The trend is our friend.