Video Market Outlooks start next week

I am finally back home after almost 4 weeks of travel (not vacation, just travel), and that means I will switch to the video format of these market outlooks starting next week. 

A tale of two conflicting stories

Bearish engulfing candle canceled after just a 5 day drop? With CPI/FOMC/PPI next week, it is too early to make that conclusion. Here are some notes from my charts using my regular indicators:

  •  My Market Reversal Indicator (MRI indicator which is still under development not ready for prime time) still shows a reversal which perfectly coincides with the bearish engulfing candle that showed up on 5/23. However, all indicators generate false positives and this one is still undergoing development. So, take that with a grain of salt for now as it does look like a false positive
  • The bearish engulfing candle got bought up within a week, and a lack of a decent pullback in these markets is very disappointing to say the least. Having said that, if you are bullish on the markets and want to keep grabbing bullish trades without wanting to wait for a pullback, hold on to your horses until Wednesday at least. Let the inflation data dictate the next move first.
  • One interesting thing in this chart is RSI. As markets are making new highs, RSI is showing divergence. If you look at the two points on 5/21 and 6/5, you will see what I mean. This is a classic sign of divergence but with a market that is so hormonal about inflation data, all bets are off and CPI, FOMC, PPI is the only thing that matters next week.

EMAs show a full bull market

Here is the part 2 of the conflicting view. Remove all indicators and slap 10,21,34 day emas and a different story emerges. And that story points to a market that only wants to go up. All the emas are positively sloping and stacked on top of each other. There is no other meaning to this than more bullish price action. Chew on that conflicting view for a second.

RRG charts – XLE, XLU very strong. XLK, XLY is still dumping

Although markets have somehow eeked out gains last week even after the hotter than expected non-farm payroll report, XLK and XLY are still down in the dumps. Do note that the RRG chart is not a leading indicator and cannot directly be used to identify trade setups. It shows you a higher level picture of where money is flowing and Consumer Discretionary and Tech are not gaining any new money according to this chart. Of course, NVDA has become so huge that it can move QQQ even when money may be flowing out of other stocks.  

Important Macro Events (Big Bang on Wednesday)

If you’re breathing a sigh of relief now that jobs week is behind us, don’t celebrate just yet. Next week brings another big bang with it. Get read for some serious craziness with Fed’s favorite gauge of inflation Core CPI due on Wednesday morning pre-market. 

Then comes the FOMC rate decision and Powell Conference. Everybody knows that the fed will be holding rates steady in this meeting so FOMC rate decision is a moot point. But what will really move the markets is what Powell says in the conference as markets are hyper-focused on the September meeting where a rate cut is expected. 

 

September FOMC meeting is where all the action is

CME Fed Watch Tool shows that June and July FOMC meetings are mostly inconsequential. Markets are still expecting a September rate cut (although the probabilities dropped after hotter than expected NFP data last Friday)

PS: This video shows you how to read the CME Fed Watch Tool and make sense of those probabilites in the chart below: https://tradingextremes.com/fomc-how-to-use-cme-fed-watch-tool-to-figure-out-fomc-rate-hike-cut-projections/

EARNINGS: AVGO, ADBE, ORCL

ADBE and AVGO do affect Nasdaq, but all earnings next week will be overshadowed by CPI, PPI and FOMC. 

VIX shows no fear, or does it?

If you look at a VIX chart or the CNN fear and greed index, it shows nothing. No fear, no greed in the markets. But if you look under the cover, a different story begins to emerge. If you look at the components of CNN Fear and Greed index, that is where things are looking interesting.

  • Market Momentum: If you look at pure price action, it shows a full blown picture of greed and that makes total sense as markets are eeking out new highs on a weekly basis, disregarding all macro-economic data.
  • Stock Price Strength: It feels like the market cares about only one stock and that is NVDA. But if you compare stocks making 52 week highs vs lows, you will see that breadth is disappearing and more stocks are making lows than highs
  • McClellan Summation Index: You should be familiar with this one as I have used this in my charts in the past. This is another breadth indicator which helps you understand if markets are begin driven up by a handful of stocks (hint: NVDA) or is it the majority of the stocks participating in a rally. Well, this picture shows another sign of divergence.