Weekly Market Recap (Jul 29 - Aug 2): The Bears Are In Control This Time. More Red Incoming?
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 down for the week, with the S&P 500 down -2.1%, the Nasdaq -3.4%, and the Dow Jones -2.1%. Utilities (+4.3%) and Real Estate (+2.8%) were the best-performing sectors.
2. The S&P 500's long-term trend is positive, however, short-term momentum is negative. 5,380 is the next resistance, while 5,300 is support.
3. The earnings season is well under way and 376 companies from the S&P 500 index have released their Q2 results, with 79% beating estimates. Earnings are expected to be up 13% in Q2 2024 and 11% in 2024.
4. Market sentiment is at the "Fear" level (27) as measured by CNN’s Fear & Greed indicator, while VIX is at a high value of 24.
5. Earnings reports from Eli Lilly, Caterpillar and Disney, are scheduled for next week.
My take:
In my last recap, I promised you a wild week with four of the Mag 7 reporting earnings, the FOMC meeting, and the job report. Well, there's no need to say that the markets over-delivered on that front. On Wednesday, the S&P 500 rallied and reclaimed 5,500. Just when the index seemed ready to call an end to its summer pullback, we experienced a deep sell-off. Failed breakouts like we just experienced are always painful, but this one was particularly tough to stomach.
What now? Undoubtedly, short-term momentum is negative, and more than half of the stocks in the S&P 500 are in correction territory, meaning down 10% or more from their recent highs. There is no point in fighting the trend here, and we need to look further down until a resistance level is reclaimed. That starts with the 5,380-5,400 area, the lower bound of the range that held for two weeks before breaking down this Friday. After that, I will look for a sustained move above the 21-day EMA trend line. As usual, we'll need to take it step by step, especially as it may take some time to recover from this week's damage.
PERFORMANCE RECAP
1. S&P 500 Sector Performance
Over the week, 5 of the 11 S&P 500 sectors have achieved gains. Utilities led the way, rising by 4.3%. By contrast, Technology was the weakest, falling by -5.3%.
Year-to-date, 10 sectors have seen positive results. Utilities has been the most successful sector, with a 17% gain. On the other hand, Consumer Cyclical has been trailing behind.
2. S&P 500 Top & Worst Performers
In the last 5 trading days, 38% of the stocks in the S&P 500 index rose in value.
The best-performing stocks were:
Resmed Inc. (RMD, 13%)
Dexcom Inc (DXCM, 13%)
Labcorp Holdings Inc. (LH, 12%)
Meanwhile, the worst-performing stocks were:
Western Digital Corp. (WDC, -16%)
Moderna Inc (MRNA, -29%)
Intel Corp. (INTC, -31%)
In addition, 119 stocks within the S&P 500 reached a new 52-week high, while 6 set new lows. 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 has crossed below its signal line, signaling potentially more pain ahead.
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 down 3% over the past month, up 6% in the last three months, and is trading 6% away from 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, 49% of the stocks are trading above their 20-day SMA, down by 18 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 is negative, with the index trading price below its 21-period exponential moving average.
Key levels: The next resistance level is 5,380. On the other hand, the next support areas are at 5,300.
3. Momentum Analysis of the Week
This week's momentum analysis is about seasonality, as we just started the month of August. Since 1964, the S&P 500 has been up 56% of the time in February, averaging a 0.1% return.
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 13%. Excluding the energy sector, the figure is +14%.
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, 52% of earnings revisions made by analysts were to increase their outlook.
The forward 4-quarter P/E ratio is 21, higher than the average over the past five and ten years.
2. Q2 Earnings Season Summary
376 companies from the S&P 500 index have released their Q2 2024 earnings, with 79% posting higher EPS than expectations. This is in line with the previous four-quarter average of 79% and higher than 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, 45% of the respondents had a bullish outlook on the stock market, increasing by 2 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 decreased from 6.9 to 6.6, a 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 27 or a “Fear” level, down from 45 last Friday.
THE WEEK AHEAD
1. Economic Calendar
The main economic report next week will be the Non-Manufacturing Purchasing Managers' Index (PMI) as markets look for further signs of the economy's health.
2. Earnings Calendar
Earnings season continues next week, and 78 companies from the S&P 500, including Eli Lilly and Caterpillar, 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 my analysis of 1 stock reporting earnings in the coming days, focusing on implications for long-term investors. This week, I prepared an in-depth overview of Disney ($DIS). In this post, I break down key data points around $DIS’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 “PASS” rating to Disney.
That’s a wrap for this week’s recap! I hope it helped you understand the market better.
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Have a great week!
My Weekly Stock
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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.
Interesting that half of the stocks in the S&P 500 are down -10% off their highs. I also saw another stat showing something like 150 new 52 week highs and only 3 new 52 week lows. To me it seems like just a healthy pullback after a really strong start to the year.