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Week Ahead: Intermittent Volatility, Fed Minutes To Drive Equities; Oil Higher

By Investing.com (Pinchas Cohen/Investing.com)Market OverviewMay 16, 2021 05:35AM ET
www.investing.com/analysis/week-ahead-intermittent-volatility-fed-minutes-to-drive-equities--oil-higher-200580384
Week Ahead: Intermittent Volatility, Fed Minutes To Drive Equities; Oil Higher
By Investing.com (Pinchas Cohen/Investing.com)   |  May 16, 2021 05:35AM ET
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  • Uneven economic data, ongoing inflation narratives could cause stocks to wobble
  • FOMC Minutes, Fed speakers may cause a stir

In our view, ongoing, uneven economic data amid the continued debate on rising inflation will keep markets volatile. Expectations for an economic rebound should favor value stocks, which stand to gain the most, after they languished during the pandemic.

However, if the current pattern holds, we expect turbulence to subside from time-to-time—that is, unless a new market catalyst emerges.

Heading into this coming trading week, investors will see whether equities can continue their rally after technology shares and some growth stocks steadied while inflation fears subsided on Thursday and Friday.

This coming Wednesday, the US Federal Reserve releases the minutes from its last meeting. That should provide some additional insight into what the central bank is currently thinking, as will a number of central bank speakers scheduled for the the upcoming week.

This is all especially important after April’s consumer price inflation figures were hotter than anticipated.

After the Volatility Index (VIX) hit its highest level since February this past Thursday, the so-called 'fear gauge' has eased.

VIX Daily TTM
VIX Daily TTM

It's now moving along its descending channel.

On the final day of last week's trade, global shares finished higher, after their sharpest weekly selloff in the past eleven weeks. Stocks on Wall Street, as well as Treasuries, advanced for a second day, as slumping commodity prices eased inflation fears.

After last Wednesday's powerful selloff, the S&P 500 climbed as it finished the week. Both sides of the Reflation Trade gained, with Energy (+3.1%) and Technology (+2.2%) closing higher.

As well, the Russell 2000 (+2.4%), whose domestic firms reflect value stocks, advanced, as did big tech as represented by the NASDAQ 100 (+2.2%), the segment that provided incredible growth during lockdowns. However, notice that cyclical stocks had the edge both in the S&P 500 itself, and when comparing indices.

Though the major US indices gained during the final days of trade last week, the S&P and Dow Jones were both down 1.1% on a weekly basis. However, the tech-heavy NASDAQ was the hardest hit, losing 2.3% for the week; it was also the fourth weekly decline in a row for the NASDAQ 100.

NDX Weekly TTM
NDX Weekly TTM

Still, the benchmark managed to climb back above the uptrend line since the 2020 bottom. The MACD fell back into a bearish cross, and the RSI is struggling to remain above the October low. The momentum gauge has been providing a negative divergence—it’s been falling since January 2020, while the price catapulted.

Stocks whipsawed last week as US consumer prices jumped the most since 2009. Still, investors have largely ignored the inflation fears. They continue to believe in an economic recovery, thanks to ongoing dovish Fedspeak. Loretta Mester, President of the Cleveland Fed, said on Friday that policy is in a good place right now; she downplayed data, while admitting there could be more volatility to come amid uneven data.

Notwithstanding recovery expectations, shares of Disney (NYSE:DIS), for example, sold off after earnings, released on Thursday, revealed a decline in the company’s streaming service membership.

DIS Weekly TTM
DIS Weekly TTM

The stock failed to maintain its recent, sharper trajectory and topped out. It will likely now retest the more moderate uptrend line since the 2020 low.

Yields, including on the 10-year note, declined for a second day on Friday after US retail sales disappointed after the prior month’s dramatic jump.

UST 10Y Daily
UST 10Y Daily

Yields fell back below the extended neckline of the double top. Should rates manage to cross back above the trend line, yields will have completed a bottom.

The dollar, pressured by falling yields, underperformed against all major currencies.

Dollar Daily
Dollar Daily

The greenback fell back below the uptrend line since the Jan. 6 low. If the USD posts a new low, we will reverse our medium-term bullish position following the falling wedge since the 2020 peak. We were bearish in the short-term, following the more recent rising wedge.

Dollar weakness and falling rates boosted gold, driving it to a second day advance.

Gold Daily
Gold Daily

The yellow metal was trading within a short-term rising channel, that has been taking on the much broader falling channel since the 2020 peak. This affords a dream short position from a risk-reward perspective.

Bitcoin has been falling along with the dollar and equities, seemingly forsaking its hitherto safe haven status.

On Friday, Bitcoin traded above $50,000. It seemed that any damage from Tesla’s decision to suspend the digital currency as a method of payment had passed. However, on Saturday, the cryptocurrency plunged again.

BTCUSD Daily
BTCUSD Daily

BTC/USD found support by a trend line which, if broken, will complete a H&S top, as the drop would aim toward the low $30,000 levels.

The recent back-to-back wedges increase the odds that the H&S will complete with a downside breakout. The low $40,000’s are expected to provide a strong support, between the January high and the February low.

Dollar weakness boosted oil, turning a losing week for the commodity positive.

Oil Daily
Oil Daily

WTI found support at the bottom of a rising channel. However, the real test will be whether the crude can do better than the $67.98, the Mar. 8 peak. We expect another rise to the top of the channel, which will meet the March resistance, after which the commodity will fall back to the channel bottom.

Then, it will probably make another attempt, which could indeed make a new high or turn into a top.

The Week Ahead

All times listed are EDT

Sunday

22:00: China – Industrial Production: seen to drop to 9.8% from 14.1%.

Monday

19:50: Japan – GDP: expected to plunge into negative territory, -1.2% from 2.8% QoQ, and even deeper on a YoY basis, down to -4.6% from 11.7%.

21:30: Australia – RBA Meeting Minutes

Tuesday

2:00: UK – Claimant Count Change: previously printed at 10.1K.

8:30: US – Building Permits: expected to edge up to 1.779M from 1.759M.

Wednesday

2:00: UK – CPI: predicted to double to 1.4% YoY, from 0.7%.

5:00: Eurozone – CPI: likely to remain flat at 1.6%.

8:30: Canada – Core CPI: expected to have fallen to -0.1% in April vs 0.3% in March.

10:30: US – Crude Oil Inventories: previous reading was -0.427M bbls.

14:00: US – FOMC Meeting Minutes

21:30: Australia – Employment Change: forecast to plunge to 15.0K from 70.7K.

21:30: China – PBoC Loan Prime Rate: previous level has been holding at 3.85%.

Thurday

8:30: US – Initial Jobless Claims: expected to decline further, to 450K from 473K.

8:30: US – Philadelphia Fed Manufacturing Index: likely to fall to 43.0 from 50.2.

Friday

2:00: UK – Retail Sales: forecast to dip to 4.0% in April from 5.4%.

3:30: Germany – Manufacturing PMI: to edge down to 65.8 from 66.2.

4:30: UK – Manufacturing PMI: anticipted to remain flat at 60.7.

8:30: Canada – Core Retail Sales: seen to drop by more than half, to 2.0% from 4.8%.

10:00: US – Existing Home Sales: to have edged up to 6.09M in April from 6.01M.

Week Ahead: Intermittent Volatility, Fed Minutes To Drive Equities; Oil Higher
 

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Week Ahead: Intermittent Volatility, Fed Minutes To Drive Equities; Oil Higher

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Comments (13)
vijay misra
vijay misra May 17, 2021 11:55PM ET
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Oil will go up with following Common sense : US opening up. India covid cases are declining, air traffic highest for the year in US, masks are out. All implies back to normal in US in a very short time and elsewhere just bit longer.  What will change? Things that went up like crazy will revert to mean. NASDAQ10-20% rotation on select stocks. Commodities and value will continue to shine. Gold will move on inflation fear which is real and evident everywhere.
Sharwan Singh
Sharwan Singh May 17, 2021 6:30PM ET
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Xauusd??
William Bailey
William Bailey May 16, 2021 10:54PM ET
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Its over for the markets , Fed almost out of bonds to buy and quickly macimg out credit! Raise rates amd markets dead , dont raise rates amd economy dead dead
Salifu iddris Iddris
Salifu iddris Iddris May 16, 2021 10:54PM ET
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Hello
Jose Maderno
Jose Maderno May 16, 2021 9:09PM ET
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Absolutely first rate article.  Thank you.
Larson Leyson
Larson Leyson May 16, 2021 6:33PM ET
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Crypto “investors” wanted a completely non-regulated non-governed decentralized currency…well, THEY GOT IT ! Now they have to live with things like Elon manipulating prices and there’s no “crypto SEC” to complain to… See, complete anarchy isn’t so good, is it?
ali ali
ali ali May 16, 2021 4:00PM ET
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informative
Casino Crypt
CasinoCrypt May 16, 2021 1:25PM ET
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First chart is a completely misleading snap shot  as it only shows the last year . Take the nasdaq back to 2010 and the chart would look like the profile of the Eiffel Tower.  The markets are completely disconnected from ground base and reality. You throw the dice at your own peril.
Ramesh Radadiya
Ramesh Radadiya May 16, 2021 11:02AM ET
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good
Corey Linton
Corey Linton May 16, 2021 9:44AM ET
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Thank you for such an informative outlook.
Jalil Rasdadel
Jalil Rasdadel May 16, 2021 9:18AM ET
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John Pasir
BallofCrystal May 16, 2021 8:39AM ET
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the question to answer is will we open up or down?
Mihir Patel
Mihir Patel May 16, 2021 8:39AM ET
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Up!
Collins Collins
Collins Collins May 16, 2021 8:39AM ET
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No one knows for sure
Paul Williams
Paul Williams May 16, 2021 7:44AM ET
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What are we expexting from gold this week
Olawoyin Quadry
Olawoyin Quadry May 16, 2021 6:35AM ET
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Good morning house
 
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