Weekly Stock Market Update & SPY Technical Analysis
Small caps saw an influx of buyers last week and pushed the Russell 2000 to a new 52 week high, a long awaited move that has been months in the making. IWM, which is the Russell 2000 ETF, saw the largest surge of volume since February; however as it ticked higher, large cap stocks and indexes moved lower. This is a market phenomenon called capital rotation, a normal event that takes place when investors move capital from one sector or fund to another. The small cap index is one of the few major indexes that is yet to reach all time highs, strongly underperforming the S&P 500 and The Dow Jones, so its move last week may be the start of its move towards a new record, but could also be a signal that profit taking on large caps is due (not necessarily).
To start off this week, traders will likely stay careful early on, especially after the uptick in volatility in the second half of last week. New inflation data from the CPI and PPI reports was supposed to relieve markets, but instead the mixed numbers only added more uncertainty. Although headline inflation came in better than expected, core inflation was still a concern. Fed Chairman Jerome Powell’s testimony also sent mixed signals, adding more uncertainty, but nonetheless markets still saw new all time highs.
Earnings season also kicked off last week, which will lead us into bank earnings this week and the first of technology companies. Major financial institutions such as Goldman Sachs, BlackRock, Bank of America, Morgan Stanley…etc. will report their numbers. Investors will particularly look at bank’s cash reserves and consumer credit in order to assess how certain parts of the economy are doing. On the technology side, Taiwan Semiconductor (TSM) and Netflix (NFLX) will report their numbers, of course these earnings will be extremely important to watch because the two companies are big players in their industry. TSM in specific works closely with Nvidia and has been one of the best performers this year due to excitement around their artificial intelligence chips. Their earnings results will move the entire semiconductor market up or down depending on the outcome.
SPY Technical Analysis:
SPY touched a new all time high last week at 563.67 before pulling back, making that our main resistance in focus coming into this week. With key earnings on the line, it may be difficult for buyers to confidently breakout of that level, so keep that in mind when positioning. As mentioned above, the market could be experiencing a capital rotation, so more capital may flow to other parts of the market and indexes such as IWM while the S&P cools.
Last and final note:
There was an assassination attempt on an American President over the weekend, and whether you’re a supporter for Ex-President Trump or not, this is a major democratic threat. Americans need to feel like we live in a safe country, where violence isn’t part of the equation. So there might be a negative knee-jerk reaction from investors early in the week in response to the event.