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The Week Ahead: Busy Week Could Hold Several Catalysts For Markets

Published 07/24/2022, 09:28 AM
Updated 07/09/2023, 06:31 AM
  • 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:

  1. Federal Reserve statement
  2. Economic data, with Q2 US GDP front and center
  3. 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:

  1. Investors will not only look to see whether companies met expectations but, considering these are past results, what will forward guidance be?
  2. 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

MSFT Weekly Chart

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

AAPL Weekly Chart

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

AMZN Weekly Chart

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 Weekly Chart

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

S&P 500 Weekly Chart

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.

UST 10-Year Daily Chart

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.

DXY Weekly Chart

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.

ZG Weekly Chart

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.

BTC Weekly Chart

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.

WTI Weekly Chart

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.

Latest comments

you forgot goog
As always, clear and to the point.. if your financial house is not in order, shame on you.. all the signs are flashing.. good luck everyone and buckle up!
Question:  With many mortgage holders in the USA having fixed rates, how impactful are rate hikes on inflation for consumers (compared to say Australia that mostly have variable rates)?  Is it the same for business investment?
congratulations and all respect for the seriousness of the article!real growth or ultra loose fed policy?exposure of inflation on retail sales figure....fang realistic analysis...thanks!!!!!
Thanks, Rcd72!
loved the article.
Thanks, Genius
PC, I thank you for sharing your work with the street..
You got it, the street
So sad, but Janet seems to think a recession is not inevitable. I'll go with that!
The same Janet who said there's no inflation?
compared to inflation in Turkey 2022, there's none!
Hi
Hi
lol
Journalists always fear monger. Nowhere near a recession.
Not a journalist. Not always. Don't fear monger. You prefer to stick your had in the SAND? THANKS for playing.
Journalists, some economists and analysts have traditionally defined a recession as two consecutive quarters of GDP contraction. But the private research group that is the official arbiter of U.S. recessions looks at a broad range of indicators instead, including jobs and spending
Recession my ***
Oh, so it's going to to be a big one, huh?
Great Article Pinchas! Thank you
Thanks, Felipe, and you're welcome
Economic conditions are clearly deteriorating. JPow wants a soft landing. Therefore 50 bps is coming.
That will prove they're not serious about inflation.  They've been doing that, including a 75 bps, and the CPI was still higher.  Canada raised the rate by 1%, now that's getting serious about inflation.
If it comes 50 market crash so badly
Bound to be a mixed bag of earrings with so many companies reporting. I see a 50bp hike as most likely. It was not even on table a month ago and jpow said not common so no reason to think that means 2 in a row. To risky for the economy
That will prove they're not serious about inflation.  They've been doing that, including a 75 bps, and the CPI was still higher.  Canada raised the rate by 1%, now that's getting serious about inflation.  On the flip side, what's also risky for the economy is lowering rates too low for too long.
First of all there is no "drastic removal of support". Currently the lace of QT will take 3 years to remove 40% of added liquidity IF it goes non stop and that is a big if.
Great analysis per usual
Thanks, Suzanne
Everyone who read this article basically are interested to look at the market from week to week basis. If they are for the long, reading updates from week to week seems pointless. As the term priced in are too much being used nowerdays. Everything seems to be priced in way before they matter. But I guess the essence of your article is the macro part of the economy. Logically speaking the sp500 hit bottom in march 2020. Where the fed has been easing bringing rate to zero, buying bonds and doing the qe magic and this year, they start to tighten increasing rate and reducing the buying and even selling them. They call this qt quantitative tightening Era but look at where sp500 is right about now. At 4000 points and some many call it bottoming. So where are we heading is real joke. Never we have in history 2 band of people equally vocal saying the bottom is in and no where near bottom. And they call it, trendless. Where are the logics? I wonder
Another fine article, Pinchas!  I wonder if like the EU, the Fed will also stop Forward guidance?
Thanks, Jeremy. I don't think so. It's their MO. It will shake confidence.
Good article , well summed up .
Thanks, Harvest
Good article , well summed up .
Thanks, Harvest
so we'll layed out with good info
Thanks, Ben!
Great article.
Thanks, Pa Cho
Great article.
Thank you, Pa Cho!
Amazing article thanks
Thanks, Billz. You're welcome!
Great article!
Thanks Aleksander
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