Weekly Market Recap (May 28-31): Is Friday's Recovery Enough to Save the Bullish Trend?
Everything you need to know about last week's markets performance and what to expect next.
Dear subscribers,
Welcome to My Weekly Stock, where we blend in-depth market analysis with proven momentum-based trading strategies. My mission? Help you navigate the financial markets with unbiased, data-driven insights you can act on!
Every week, I spend hours curating this market recap, producing insightful analyses with clear visuals and a structured layout so you can easily find what you need, week after week. And because it's easy to get swayed by personal bias, I like to let the data do most of the talking.
Let’s get started!
SUMMARY
Here are this week's highlights and what to look out for next:
1.The markets were negative for the week, with the S&P 500 down -0.5%, the Nasdaq -1.1%, and the Dow Jones -1%. Energy (+2.0%) and Real Estate (+1.9%) were the best-performing sectors.
2. The S&P 500's long-term trend is positive. 5,400 is the next resistance, while 5,265 and 5,150 are support.
3. The earnings season is well underway, and 489 companies from the S&P 500 index have released their Q1 results, with 78% beating estimates. Earnings are expected to be up 8% in Q1 2024 and 11% in 2024.
4. Market sentiment is at the "Neutral" level (48) as measured by CNN’s Fear & Greed indicator, while VIX is at a low value of 13.
5. Earnings reports from Lululemon and Dollar Tree, and the Nonfarm Payroll report are scheduled for next week.
My take:
As anticipated, the holiday-shortened trading week delivered us increased choppiness and volatility. Friday morning began on a concerning note as the S&P 500 dipped below the 5,265 support level and temporarily breached its 21-day EMA—a critical trend line. However, the market staged a strong reversal by the end of the day, bringing us back above these crucial levels. This type of action is typical in a bull market, where pullbacks are buying opportunities and bears get squeezed.
Looking ahead to next week, I expect continued choppy trading. I am not entirely sure the pullback is over, and Friday's recovery hasn't completely put us out of the woods. And until we resume making new highs, we remain at risk of a deeper pullback. But given that the long-term trend is largely positive, I am inclined to give the benefit of the doubt to the bulls.
PERFORMANCE RECAP
1. S&P 500 Sector Performance
Over the week, 8 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 -2.3%.
Year-to-date, 9 of the sectors have seen positive results. Communication Services has been the most successful sector, with a 15% gain. On the other hand, Real Estate has been trailing behind.
2. S&P 500 Top & Worst Performers
Last week, 59% of the stocks in the S&P 500 index rose in value.
The best-performing stocks were:
Best Buy Co. Inc. (BBY, 22%)
Deckers Outdoor Corp. (DECK, 21%)
Marathon Oil Corporation (MRO, 12%)
Meanwhile, the worst-performing stocks were:
Paycom Software Inc (PAYC, -17%)
American Airlines Group Inc (AAL, -17%)
Dayforce Inc (DAY, -19%)
In addition, 33 stocks within the S&P 500 reached a new 52-week high, while 20 set new lows, indicating that the positive momentum is slowing down. Most of the highs this week came from the Technology sector, while Healthcare has seen the most new lows.
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 currently neutral.
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 up 5% over the past month, 3% in the last three months, and is trading less than 1% away from 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, 47% of the stocks are trading above their 20-day SMA, up by 1 point compared to the previous week.
Trends: The 1-day remains positive but we are seeing some weaker action on the 4-hour chart.
Key levels: The next resistance level is 5,400. On the other hand, the next support area is at 5,265.
3. Momentum Analysis of the Week
This week's momentum analysis is about seasonality, as we are starting the month of June. Since 1964, the S&P 500 has been up 58% of the time in February, averaging a 0.1% return.
EARNINGS RECAP
1. Q1 and Full Year 2024 Expected EPS & Revenue Growth
Q1 2024 earnings for the S&P 500 are expected to be up 8%. Excluding the energy sector, the figure is +11%.
Earnings are projected to grow by 11% in 2024, slightly higher than the 9% growth seen on average over the last decade. In the past four weeks, 58% of earnings revisions made by analysts were to increase their outlook.
The forward 4-quarter P/E ratio is 20.9, higher than the average over the past five and ten years.
2. Q1 Earnings Season Summary
489 companies from the S&P 500 index have released their Q1 2024 earnings, with 78% posting higher EPS than expectations. This is in line with the previous four-quarter average of 78% 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, 39% of the respondents had a bullish outlook on the stock market, decreasing by 8 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 5.6 to 5.5, a neutral 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 48, or a “Neutral” level, down from 53 last Friday.
THE WEEK AHEAD
1. Economic Calendar
Next week, the focus will be on the Nonfarm Payroll report, expected on Friday. As a valuable indicator of employment trends, it provides insights that can affect everything from consumer spending to Federal Reserve policies.
2. Earnings Calendar
Earnings season continues next week, and 8 companies from the S&P 500, including Lululemon and Dollar Tree, 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 Lululemon (LULU). In this post, I break down key data points around LULU’s fundamentals, stock returns, analyst ratings, and past earnings performance to help you make informed investment decisions.
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
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.
Sure is a good look for the bulls heading into next week!