- Fed, earnings, and data make this the busiest week of the summer
- Economic reports, big-tech earnings on tap
- Will "not-as-bad-as-expected" earnings continue to be enough?
I expect an exceptionally volatile week due to a week chock-full of potentially cataclysmic news:
- Federal Reserve statement
- Economic data, with Q2 US GDP front and center
- 1/3 of S&P 500 firms publish results, including Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL), Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL), Amazon (NASDAQ:AMZN), and Meta (NASDAQ:META)
Fed
Investors will weigh all the corporate data and Fed guidance to formulate an opinion about whether the economy will hit a soft or hard landing, if not a recession. Market participants will ask themselves the following core question: how dependent has growth been on the most generous monetary and fiscal policy in history? The next logical step in their thinking from there: Can the economy keep growing with the drastic removal of this dual support?
For now, traders scaled back last week's bets over a 100 basis point hike egged on by hot inflation data. The consumer price index surged 9.1% annually, the hottest figure since Nov 1981. However, upbeat retail sales data Friday before last eased concerns of an unavoidable recession. Investors concluded that retail's 1% rise, beating expectations, demonstrated consumers' resilience.
However, when adjusted for inflation, retail sales are down. People only spent more money because prices went up, they did not increase their shopping. So, I'm not sure when that will hit the market, nor do I know why institutions are quiet about it. Either they don't want to rock the boat or think the Fed doesn't want to and are going along with it.
Economic Data
Q2 GDP will be released on Thursday. The personal consumption expenditures index, the Fed's preferred inflation data, will be published on Friday. That will be excluding volatile food and energy prices.
The GDP is the most critical data, and in some places expected to show a contraction. If so, it would be the second in a row after the 1.6% decline in the first quarter. If this scenario follows through, we will have an official recession.
The Atlanta Fed GDPNow, a widely watched predictor of GDP, had its latest estimate at 1.6%, suggesting a recession is here.
Earnings
The biggest companies in the US will be releasing corporate results this week. Microsoft and Apple, the nation's two largest corporations, are scheduled to report Tuesday and Thursday, respectively. Alphabet's earnings are due Tuesday. Amazon is slated to post Thursday, and Meta will report on Wednesday. Over a third of the companies listed on the S&P 500 will be posting earnings. There are a few things to keep in mind:
- Investors will not only look to see whether companies met expectations but, considering these are past results, what will forward guidance be?
- Even if firms met or exceeded expectations, how did they fare relative to previous years? How excited are investors likely to get if expectations were low?
Let's examine these companies' supply and demand, and see their trajectory, to gauge how investors have been viewing them heading into the reports.
Microsoft
The stock found resistance by the top of a Symmetrical Triangle, reinforced by the 100-week MA, after completing an H&S top, in Aug 2021. The top pattern's implied target is $205, which meets the 200-week MA.
Apple
The iPhone maker may have completed a top since Sep 2021. Last week the stock gapped up but found resistance by the 50-week MA, below the neckline. The top's implied target is $125. However, since the stock already reached $130, its pressure may have lessened, making it a less attractive short than its peers.
Amazon
Amazon has completed a top since Aug 2020. The price triggered a repeated return move and so far found resistance below the neckline aligned with the 200-week MA for the second time. The pattern's implied target is $74.
Meta Platforms
META has suffered the most among its class, falling twice as much as the 30% MSFT, AAPL declines, and a third more than Amazon's 45% drop. So, while the stock has fallen and found resistance below its 200-week MA, and the 50-week MA recently crossed below its 100-week MA, in an expansive display of weakening pricing, META is the toughest to predict. I don't identify any discernible pattern, and the company may be low enough to attract bargain hunters.
So, except for Meta, collective traders appear to say that the stock should keep going lower. Will earnings change that? In my opinion, unless earnings are much better than expected - not only better than low expectations, but if companies can demonstrate that they can grow profits despite spiking inflation and interest rates - Q2 earnings will not mark a bottom for these stocks. There will be short-term volatility before another leg down.
Macro Picture
Even if the downward sloping H&S neckline fails, the S&P 500 Index will still be just rebounding within its Falling Channel after reaching the bottom and nearing the 200-week MA. I expect the down-bearing 50-week MA, the 100-week MA, and the channel top will stop the bear rally if the neckline fails to do so, already coming Monday.
Yield Curve Inversion
Another reason to believe earnings won't help is that the yield curve inversion endured in the past few weeks, and it will continue to focus after Friday's steep fall in the 10-year yield to close at 2.783, compared to the 2-year yield at 2.991.
The 10-year yield closed below the neckline of an H&S top, which implied target is 2%, demonstrating a rotation between stocks and bonds. In other words. investors are rerouting funds away from equities, allowing them to fall.
The Dollar fell on a weekly basis for the first time in four weeks.
The Greenback has room to further fall toward 100, with a 102 being likely to support. The primary trend is very much up after the 50-week MA crossed above the 200-week MA, triggering a weekly Golden Cross.
As bombastic as that sounds, keeping things in perspective is essential. The last Golden Cross was reached in May 2021, and the Greenback climbed only 5%, and took ten months to do so. Moving averages are not very effective predictive tools when an instrument is trendless.
Despite the dollar's recent significant moves, it had been ranging within a 15% band since March 2015, and it broke free in June. And that is significant.
So, maybe this time, the weekly Golden Cross will hold more weight. When the 50 WMA bested the 200 WMA in Sep 2012, the dollar surged almost 30% by Dec 2016, of which 25% was achieved by Mar 2015, less than two and a half years later.
Gold is tricky in the current environment. Gold is thought to be an inflation hedge. So, the yellow metal should rise amid the highest inflation in more than 40 years. Yet, gold is down 19.25% from its March peak. Presumably, gold has been weighed down by a stronger dollar amid the view for higher interest rates. However, as we've often seen, markets are fickle. A new data set gives hope; another piece of news takes it away. If the dollar keeps falling to its uptrend line, gold might rise off its lows since Apr 2020, which the 200 WMA supports. However, if gold falls below, it will tip out, implying a $1,300 target.
Bitcoin rose last week to its highest level since mid-June, though the 200 WMA tamped down the jump.
While BTC could theoretically climb til its neckline, currently at $36K, in a glorious return move to a massive top, it will more likely remain within its falling channel as it heads lower.
Oil fell for the third straight week, or five out of six weeks, amid lower demand in the face of recession, compounded by higher supply, after the EU tweaked sanctions to unblock Russia's oil deals with third countries.
After completing a Rising Flag and a Symmetrical Triangle, which implied that oil could fall towards the $60s, WTI may be conducting an extended bearish pattern, i.e. a Descending Pattern. The range's shape is more bearish, as it demonstrates that selling overtakes demand, with sellers willing to sell for lower prices while buyers were only willing to purchase for the same prices.
The Descending Channel will provide a more downward breakout and a starting point, aiming at $60 flat, about $4 lower than the Symmetrical Triangle. However, this triangle will only be compelling if the price rallies again within it. It can complete another return move to retest the Symmetrical Triangle, as the pattern requires at least two points on the top and the bottom. That means that the current price will only become the low if it rises at least a third of the previous decline, to about $105, before it provides a downside breakout for the Descending Triangle, as it sucks in more investor interest that will need to later unravel, potentially creating an even more explosive chain reaction.
Disclosure: The author currently does not own any of the securities mentioned in this article.