Let’s spend our mid-week market time together talking about this “bottom” in stocks.
There’s nothing better than the feeling that the market has put in a bottom when you’ve got a pile of cash ready to buy stocks. You’ve got that pile, right?
There’s also that other feeling. The feeling a week after you bought all of those stocks you wanted at a discount when the market suddenly turns and head to even lower levels than before.
That’s where we are right now.
The last four weeks have been rough on the Nasdaq 100. The index was down 8% from its December highs. The tech heavy index has rallied 2% this morning. Was that a bottom?
The Russell 2000 Index – the one index I’ve been hammering your head that you need to watch – 9.7% from its highs and 4% from last week’s lows. Do you think that’s all the selling?
The answer is “maybe”.
This week, the CNN Fear & Greed Index dipped into “fear” readings. It’s the first time that we’ve seen broader market sentiment turn decidedly negative since July. That’s progress. But remember, we want to see a trickle of blood running in the streets. Right now, the market is just bruised.
Market bottoms aren’t convenient.
They don’t happen when everyone is watching. You usually notice that they “happened” not that they are happening. They are a hindsight occurrence.
This morning, the banks kicked off earnings season.
All the usual suspects came in with great earnings numbers.
Goldman Sachs, Citigroup, JPMorgan Chase… they all beat their earnings expectations handily. But they posted their amazing results on one thing consistently, their investment portfolios.
Let’s face it, the big banks aren’t really a great read on how the rest of the market is doing. Housing, retail, technology, those are the sectors to watch.
Ironically, the S&P bank ETF was trading 16% lower than their December highs. The banks aren’t doing that well, but that’s another talk we’ll have.
What everyone is forgetting is that we’ve still got roughly 90% of the S&P 500 left to report earnings over the next month. The race is just starting.
We’re still looking at numbers coming from the likes of Microsoft, Apple, Google, Amazon, Meta Platforms and other stocks with exceedingly high expectations.
This week’s rally is a convenience manufactured by technical analysis and the Fed. Stick with me for a minute.
First, the S&P 500 and Nasdaq 100 both remain in a negative momentum situation.
Both indexes have roughly 80% of their constituent stocks trading below their 50-day moving averages. The last time that happened was in October 2023. It may be a bullish signal, but it could also be a signal that the dead cat is bouncing.
Both indexes are trading right at their 50-day moving averages because of today’s CPI report. Had the number come in slightly “warm” we would be having a different, more difficult talk.
Those two triggers along with the fact that we were getting close to a 10% correction was enough to get the algorithms buying.
According to the volume patterns they’re not buying big, which means Wall Street isn’t confident that we’re done. They need to be.
My Bottom Line:
The next few weeks are going to be more of the same. A push and pull through earnings season as everyone waits for a few companies like NVIDIA and Apple to provide their earnings reports.
You need to have your eyes on just a few other things between now and then
Here’s what to watch…
The S&P 500 must remain above 5,900. A break back below that simple number will cause the sellers to pick right up where they left off last week.
The next week will be beyond critical. There is a trend of lower highs and lower lows in place on the S&P 500. Today and a few more days of buying would be perfectly natural to see as part of a larger trend lower for stocks.
A move back towards, and below, 5,700 would be the breaking point for stocks as earnings season gets rolling. It would put the market into a similar situation that we saw today… one number (CPI) saves the day. That situation won’t save the months of January and February.
One more number to watch in addition to the S&P 500 at 5,900… The VIX.
The “Fear Index” dropped back below 18 after threatening to spike above 20. A move above 20 will get the sellers going again.
The VIX has been trending higher for the last two weeks which is why stocks remain pressured. One number – again, like today’s CPI – will not be the difference between stocks heading higher for the next three months or lower.
I mentioned the banking sector earlier. We’ll break down the banking sector and what is going wrong there since real bull markets are almost always led higher by strong performance from bank stocks.
That will be on Friday. Until then, stay cautious.