Weekly Market Recap (Jul 15-19): Mega-Caps Sell-Off Drags the Market Down. More Pain Ahead?
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 mostly down for the week, with the S&P 500 down -2%, the Nasdaq -3.6%, but the Dow Jones up 0.7%. Energy (+2%) and Real Estate (+1.3%) were the best-performing sectors.
2. The S&P 500's long-term trend is positive. 5,620 is the next resistance, while 5,500 is support.
3. The earnings season is under way and 70 companies from the S&P 500 index have released their Q2 results, with 83% beating estimates. Earnings are expected to be up 11% in Q2 2024 and 11% in 2024.
4. Market sentiment is at the "Neutral" level (49) as measured by CNN’s Fear & Greed indicator, while VIX is at a medium value of 17.
5. Earnings reports from Tesla and Alphabet, the PCE report are scheduled for next week.
My take:
This week proved challenging for the market as continuous selling pressure in tech led to the worst week in three months for the S&P 500. The rally from April's low had narrowed breadth, with gains concentrated in a few mega-cap stocks. This left the markets vulnerable to a pullback when these mega-caps took a breather—as they inevitably do.
Now what? The short-term momentum has turned negative, and the S&P 500 has lost its 21-day exponential moving average, signaling a trend reversal. The critical question is whether the mega-cap stocks can find support next week. If not, the negative sentiment might be too high and will likely drag down the rest of the index.
PERFORMANCE RECAP
1. S&P 500 Sector Performance
Over the week, 5 of the 11 S&P 500 sectors have achieved gains. Energy led the way, rising by 2%. By contrast, Technology was the weakest, falling by -5.5%.
Year-to-date, all the sectors have seen positive results. Communication Services has been the most successful sector, with a 17% gain. On the other hand, Real Estate has been trailing behind.
2. S&P 500 Top & Worst Performers
In the last 5 trading days, 55% of the stocks in the S&P 500 index rose in value.
The best-performing stocks were:
Warner Bros. Discovery Inc (WBD, 17%)
D.R. Horton Inc. (DHI, 13%)
Solventum Corp (SOLV, 11%)
Meanwhile, the worst-performing stocks were:
Charles Schwab Corp. (SCHW, -18%)
Crowdstrike Holdings Inc (CRWD, -18%)
Advanced Micro Devices Inc. (AMD, -17%)
In addition, 139 stocks within the S&P 500 reached a new 52-week high, while 7 set new lows, indicating that the momentum is on the upside. Most of the highs this week came from the Financial sector.
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 9 and 30-week exponential moving averages (EMAs). To determine if the trend is strongly positive, I look for the following conditions (the 1st is the most important):
9-week EMA is above the 30-week EMA: 🟢
Price is trading above the 9-week EMA: 🟢
Price is trading above the 30-week EMA: 🟢
The 9-week EMA trend line is rising: 🟢
The 30-week EMA trend line 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 flat over the past month, up 10% in the last three months, and is trading 3% away from 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, 69% of the stocks are trading above their 20-day SMA, down by 12 points compared to the previous week. A reading above 80% or below 20% typically indicates an overextended trend.
Trends: The trend on 4-hour and 1-day charts has turned negative, with the index trading price below its 21-period exponential moving averages.
Key levels: The next resistance level is 5,620. On the other hand, the next support areas are at 5,500 and 5,450.
3. Momentum Analysis of the Week
This week's momentum analysis focuses on extended trends in the S&P 500, employing the Relative Strength Index (RSI) to filter stocks. The RSI is a valuable tool for spotting stocks that are potentially "oversold" (RSI below 30) or "overbought" (RSI above 70). Although I wouldn't rely solely on RSI, it helps identify stocks in extended trends that may be approaching a turning point.
EARNINGS RECAP
1. Q2 and Full Year 2024 Expected EPS & Revenue Growth
Q2 2024 earnings for the S&P 500 are expected to be up 11%. Excluding the energy sector, the figure is +12%.
Earnings are projected to grow by 11% in 2024, higher than the 9% growth seen on average over the last decade. In the past four weeks, 44% of earnings revisions made by analysts were to increase their outlook.
The forward 4-quarter P/E ratio is 21.5, higher than the average over the past five and ten years.
2. Q2 Earnings Season Summary
70 companies from the S&P 500 index have released their Q2 2024 earnings, with 83% posting higher EPS than expectations. This is higher than the previous four-quarter average of 79% 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, 53% of the respondents had a bullish outlook on the stock market, increasing by 4 points from the previous week.
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 increased from 6.3 to 6.5, a slightly bullish sentiment reading.
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 49 or a “Neutral” level, down from 57 last Friday.
THE WEEK AHEAD
1. Economic Calendar
The main economic report next week will be the Personal Consumption Expenditure (PCE) Price Index, the Fed's favorite measure of inflation. Markets anticipate core PCE to have increased by 2.6% year-over-year in June. We will also get another GDP update for Q2.
2. Earnings Calendar
Earnings season continues next week, and 134 companies from the S&P 500, including Alphabet and Tesla, 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.
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 Coca-Cola ($KO). In this post, I break down key data points around KO’s fundamentals, stock returns, analyst ratings, and past earnings performance to help you make informed investment decisions. Check out the post and learn why I gave a ”HOLD” rating to Coca-Cola.
That’s a wrap for this week’s recap! I hope it helped you understand the market better.
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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.
I can imagine how much work you put into all those graphs and analysis. Just great work!