One: The S&P 500’s 50-Day Moving Average Is in Play
Last week’s strong finish put the S&P 500 and tech-heavy Nasdaq 100’s 50-day moving average in play.
If you’re not familiar, the 50-day moving average of these indices is one of the most watched technical trendline. This single trendline embodies the saying “the trend is your friend,” which is why most of Wall Street reacts to moves above or below it.
We saw both the S&P 500 and the Nasdaq 100 break below their respective 50-day moving averages in mid-April, a move that caused investors and institutions to increase their selling of stocks.
Thursday and Friday’s rallies brought both indices to close right on their 50-day moving averages. A move above these trendlines should act as a bullish trigger as investors and institutions take the cross back above the “friendly trend” as an “all clear” signal for the market.
Here’s the rule to use in these situations.
This morning’s early trading will put both the SPX and QQQ above their 50-day moving averages. While this is a bullish cross, I always wait for two days before counting this as a bullish signal.
Here’s why…
Large traders often take these short-term rallies as an opportunity to sell into the market’s strength, causing it to reverse back below the 50-day, forming a false signal. If that happens, we’ll see reactionary selling, which puts the trend at risk again.
Looking forward, the S&P 500 ETF (SPY) will move back into its bullish trend with a cross back above $520. The Nasdaq 100 ETF (QQQ) will do the same as it crosses back above $450.
Two: The Fed’s Decision and Jobs Number
I know… both these events happened last week, but the short-term momentum that was sparked by Friday’s jobs report should carry the market higher this week.
Blame it on Sir Isaac Newton if you like.
Here’s what I mean…
As mentioned, we’re in a vacuum when it comes to “events” and big earnings this week, which means that stocks really have very little in the way of external forces to change their direction or motion.
We all learned in high school physics that an object “remains in motion at a constant velocity unless acted on by a net external force” - Newton’s First Law.
Stocks were set in their “rally mode motion” last week after Jerome Powell and the Fed gave some indication that they believe they won’t need to raise interest rates and that we would see lower rates this year.
Prices will move higher this week unless stocks see an unexpected “external force”… it really is that simple.
Three: Earnings to Watch
The last three weeks have held earnings reports that had the potential to trip the market or trigger widespread selling.
You know the names… Microsoft (MSFT), Alphabet (GOOGL), Amazon (AMZN), even Tesla (TSLA) had the potential to drop stocks. For now, the fear over a bad report getting in the market’s way is gone.
Looking at the earnings calendar, we’re finally going to get a short rest from the headline numbers that everyone has been worrying about.
Last week, investors were on pins and needles as they waited for Apple (AAPL)’s result to land on The Street’s doorstep last week, and the fact that the company didn’t disappoint – at least that’s what the market thinks, if you missed my deep dive on Apple’s earnings, check it out here.
This week, there are no nerves about the companies reporting, as we’re falling into a short lull when it comes to the headliners. But there are a few to watch. Here’s a look at my top six earnings to watch this week.
Of note is the fact that we’re starting to get a better look at the consumer discretionary stocks this week.
Last week’s earnings shock from McDonald’s (MCD) and Starbucks (SBUX) has analysts and economists buzzing as consumers are clearly reigning in their spending habits due to inflation. Earnings reports and outlooks from Disney (DIS), Airbnb (ABNB), and Uber (UBER) will start to fill in the trend in spending, which some fear could be slower than thought a few months ago.
I’ll be back with you after lunch to break down Disney’s stock ahead of tomorrow morning’s earnings results.
About the Author
Chris Johnson (“CJ”), a seasoned equity and options analyst with nearly 30 years of experience, is celebrated for his quantitative expertise in quantifying investors’ sentiment to navigate Wall Street with a deeply rooted technical and contrarian trading style.