Last week, we forecasted that the market would move sideway with the $SPY and the $QQQ floating right above their 61.8% Fib and the $IWM trying to catch up. Based on this forecast, we finished the week with a few good trades on $IWM, $LULU, $AMD, $QQQ, $NVDA, a loss on $TSLA on Tuesday but won it back on Friday. We also stopped out the rest on $WDC at break-even. Currently, we’re holding $IONQ monthly July 21, $10 calls.
We’re having a very important week this week. Perhaps the biggest wild card is Tuesday’s inflation report. If the numbers come in hot, Powell and his peers could face pressure to hike rates without priming the market first. Even with a pause, but a “hawkish pause,” the stock market could be in for more turbulence if the Fed signals it plans to follow the BOC and RBA that delivered a surprise interest-rate hike, with a hawkish surprise of its own. (Bloomberg)
So far this year, high-flying tech stocks have helped to overcome weakness in other areas of the market. This has started to change over the past two weeks, as small-cap and value-stocks have lurched suddenly higher, but there are fears that the Fed could hurt the most interest-rate sensitive technology names if Chairman Powell hints at rates rising higher than investors presently anticipate. (New York Times)
Whatever the Fed does or says will likely be viewed through the lens of economic data that is due out this week. In addition to the Tuesday inflation report, a report on May retail sales is due out Thursday, and on consumer sentiment from the University of Michigan on Friday. All these data points could influence investors’ impressions of the state of the U.S. economy, and their expectations for how the Fed will behave as a result. (Barron)
On the technical side, finally, the S&P 500 on Thursday closed above the threshold that marked its exit from the longest bear market since 1948. The SPX close at 4,293.93 on Thursday, marking a gain of more than 20% from its Oct. 12 low. (The Nasdaq exited a bear market on May 8, while the Dow exited its bear on Nov. 30.)
Under the criteria used by Dow Jones Market Data and many other market watchers, a 20% rise from a recent low, signals the start of a bull market while a 20% fall signals the start of a bear market. That means the market is always in either a bull or bear market. Also, the market doesn’t hop into and out of either a bull or bear each time it crosses the threshold again. It takes another 10% or 20% move in the opposite direction to change the status. (Marketwatch)
If holding over $430 this week, $SPY may continue to climb to $442 then to 78% Fib. at $450-$452. If it fails to hold $428, $SPY may restest $425 support and gap close at $422. The $QQQ may fill the gap above at $360-$361. Over this level, it could climb to $368-$370. Currently, it has support at 61.8% Fib. around $349-$350.
Therefore, we should expect a volatile week ahead of us and embrace it with some great trades both on the FAANG’s and on the Russell 2000. Let’s have a great week. Namaste!
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