Weekly Market Analysis: Recap and Forecast. The Week of June 24, 2024

market analysis Sep 19, 2024

Last week, we were expecting a side-way move, but the ended up making new all-time-high before pulling back and closing 0.6% gain on both the S&P500 and the Nasdaq. As of now, the U.S. stocks have posted an impressive rally so far in 2024 and is on pace for the second-best performance in an election year in history, according to Dow Jones Market Data. This rally was a result of earnings growth expectation of 12% to 13% in 2024, and rate-cut optimism. This rally has left valuations stretched, crowded sentiment, and the market overbought. So now investors question whether that rally will continue or not. They’re watching inflation and economic growth data to gauge the Fed’s potential interest-rate path, as well as corporate earnings in the second half of this year.

There are a few factors that make the market vulnerable to a correction in the second half of the year, including corporate-earnings estimates, uncertainty on Fed rate cuts and November’s presidential election, and the limited breadth of the market’s rally. But investors are even more concerned about persistent inflation, which together with growth data. While the Fed has forecasted only one rate cut for the rest of the year, fed-funds futures traders are currently pricing in two cuts starting in September. Thus, for the stock market to continue its rally, investors will need to see a broadening of the rally from both a price-to-earnings perspective and Fed’s rate cut starting this year.

This week, we have the Fed’s favorite inflation-related data point to be released, the personal-consumption expenditures, or PCE, on Friday. Wallstreet expects the PCE numbers for May to confirm that inflation is slowing, as was reflected in CPI data released earlier this month. They expect both the headline and core PCE inflation figures to be lower than in the previous month, which is good for the stock market. Also, investors will be watching for new Consumer-Confidence data on Tuesday, new home-sales data on Wednesday and initial jobless-claims numbers on Thursday.

Though, on the technical side, we start seeing some divergences on some of internal indicators while the market is making new highs, which could be a warning sign. Some of these indicators of which we don’t usually use, but I do check them once in awhile to keep an eye on the market the same way I did when I called on market divergences back in Oct-Nov 2021. We will continue to track them and watch out for confirmation.
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Last week, $SPY reclaimed $544, broke over $546 and traded to $550 like we projected. $QQQ also broke through $480 resistance and traded to $485 before pulling back down and closed at $480. $SPY is currently under $545-$546. A rejection here may take it down to test $541-$540 support again. If it fails to hold this level, look for it to trade down to $537-$535. Over $546, it may want to retest $550 resistance again, then break out over $551 to $555-$556. $QQQ is also right under its previous resistance $480. A rejection at $480-$481, it may go back down to $474-$472-$468 then $465. A reclaim of $483, $QQQ can trade to $486 then $489-$490.

With a busy schedule of economic data this week, we may see a lot of whipsaws. Pay particular attention to volumes because volume breadth is one of the divergent signals. We also have earnings on $FDX, $MU, and $NKE. We’ll focus on the Indexes, our FAANG’s stocks and possible an earning trade. Until then, have a profitable week, embrace and enjoy market volatility = opportunity = profitability. Namaste!!!

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