NO VIDEO MARKET OUTLOOK THIS WEEK
I am visiting my precious daughter in Arizona for a few weeks and I just have a laptop with me, so might have to stick to these blog style formats for market outlooks. I do want to publish a video for my second backtest, so will probably figure something out soon.
CORE PCE, Jobless claims and GDP!!!
- DOW is breaking out, SPY is breaking out, Qs are still catching up. Should you switch to full bull mode?
- Powell gave us a big surprise cut, and nobody knows if it was truly from the goodness of his heart or is there something that he is hiding from us? Here is what you need to keep an eye on next week:
- We have a bunch of Fed talk next week (in blue). Since most of the FOMC particpants have turned dovish, I just expect them to justify their dovishness. So nothing earthshaking there! Listen to them if you want, but they are not going to move the markets.
- Jobless claims hasn’t confirmed the weakness in the labor market yet (ADP and NFP reports have been showing weakness in hiring for weeks). After SAHM’s rule showed a recession coming up in as little as 3 months, markets are hyper focused on these numbers.
- GDP – After living in a “bad news is good news” environment for over 2 years, we are back to good old “bad news is indeed bad news”. Any hints of a slowing GDP would indicate another concering factor next week which Powell may have not revealed to the public.Â
- And finally, Core PCE the big bad event for the week. Based on the mixed CPI and PPI reports, I expect PCE to come inline with expectations. But any ugly surprises will destroy this rally in an instant.Â
SPY – Emas stacked up
Dow Jones broke out of its trading range, and SPY has followed its footsteps. With Qs still struggling, we don’t have a confirmation to go bullish. But if you ignore everything else and look at the EMAs, the momentum is clearly bullish.Â
If you are following the Tues/Fri split trading style, then you could start the week of with some bullish setups and save 1/2 of your capital for Friday (Core PCE..shudder!!!!)
DIA – Leading the rally
Dow Jones is leading this breakout rally and is looking the strongest of them all. Do note that Dow Jones is also comprised of defensive sectors like consumer staples, utilities and health care. So a breakout in DIA doesn’t necessarily indicate a new bull run starting. Having said that, almost all sectors in Dow are green at the moment and the momentum is undeniably strong.
QQQ – Interesting!! New rallies are usually led by growth/tech
This is an interesting one. Bull runs and new all time highs are usually led by the growth/risk/tech sector. But this time around, Qs are the lagging behind. This is the only thing that makes me suspicious of this rally.
But that could all change if jobless claims, Powell Speech and Core PCE all point to a strong economy, stable jobs market and slowing inflation.
IWM – Range bound
I use DIA, SPY, QQQ as market sentiment indicators and to predict future price movements. This Russell 2000 ETF (IWM) comprises of low quality stocks so I use it purely for trading and don’t use it as a market sentiment indicator. I took a bear put spread trade last week mentioning that IWM honors support/resistance levels very nicely and seems to be getting rejected at resistance around 225 (this resistance was established back in July and is still holding strong).Â
RRG charts – No predictive power?
Based on my observations over the past year, RRG charts are not showing much predictive power and I have mentioned this many times in my videos and market outlooks. Use these charts to see where money is flowing and base your trades on that. For eg, you wouldn’t want to go overly bullish on tech until XLK starts moving into the improving quadrant.Â
Watch this video if you haven’t already: LINK: https://tradingextremes.com/sector-rotation-secrets-picking-the-right-stocks-to-trade/
EARNINGS: We get to relax for 2 more weeks
Earnings season is over (and it starts again in 2 weeks). There will always be 2-3 stocks which report earnings late in the season and we do have COST, ACN and MU reporting earnings this week. If anything, these will simply give us trading opportunities. But they don’t have much market moving power. Sure, MU will have a tiny effect on the chip sector and COST will affect XLP. But thats’ about it.Â
Trading plan for next week
- Because of the Jobless claims, GDP and Core PCE , I recommend splitting your trading allocation using the 50/50 protocol
- I markets continue to go up on Monday, Tuesday, by all means go ahead with some bullish trades (while saving capital for the craziness that will unfold on Thu and Friday)
- If markets start going into a pullback early on, this rally becomes suspect (unless Qs participate, this rally continues to be suspect anyway) and you might want to grab some bearish setups toward the beginning of the week.