YOUR WEEKLY ROADMAP

After a week that saw some strong intraday volatility in the S&P 500, markets could calm as we end August and kick off the Labor Day weekend. The earnings parade is dwindling down and traders are looking to enjoy the last unofficial week of summer.

However, a flurry of economic data points like the Case-Shiller home price index, ADP employment and GDP revisions will keep traders on their toes. The biggest data points come Thursday in the PCE and the jobless claims report. Those points will be the focal point for the Fed’s path going into their September meeting.

The two key indexes we are watching in the market remain the S&P 500 and the 4325 mark as well as the 10-year treasury and that 4.3% level.

The S&P 500 was able to hold above that key 4325 support level. However it hasn’t given us an all clear sign just yet. Watch the 50-day moving average to the upside at 4460. The rally got back to that level on Thursday and faltered.

We could get stuck in a range between these two levels over the next week. While the bulls remain in charge, the bears are still trying to knock us back to and below this key level. Technicians are also a tad leary of a head and shoulders top forming. While it's too soon to make that call, we could be talking about that in next week’s newsletter.

The same goes for the 10-year. It looked as if it was about to break out above the 4.3% mark, but it couldn’t close the week above that threshold. If rates have topped for now then expect the high growth names and tech sector to continue to rebound. The 10-year closed at 4.239.

Was last week’s trip above 4.3% a fake out or a break out? The bulls are hoping it was a false move and that a counter move down is in the cards.

Personal Consumption Expenditures (PCE) known as the Fed’s preferred inflation measurement is expected to tick slightly higher when released on Thursday.

The Fed prefers this inflationary measure more than the CPI because it covers a broader range of spending. The core PCE previous reading of y-o-y 4.1% was its lowest reading since September 2021. This month economists are expecting a slight tick higher to 4.2%.

Seeing that Jay Powell claimed the Fed will continue to be data dependent when discussing the future path of rate hikes, this number will be scrutinized under a microscope. While the PCE hasn’t moved the needle as much as the CPI in the past, given the recency of his speech and the upcoming September FOMC meeting, a number not inline with the 4.2 expectation could cause unexpected market gyrations.

Half-way through seasonal headwinds? This Thursday marks the end of August. The month is staying true to form as being one of the worst months of the year. The S&P 500 is down -4%, the Nasdaq 100 is down -5.2% and the Russell has given back -7.5%.

Sadly September doesn't get any better. As seen in the graph above, it’s the worst performing month over the last 20 years with an average loss of -0.5%

Sector to Watch - Healthcare (XLV)

One sector that has silently been lifting its head recently is Health Care.

The sector is still down -1.4% year-to-date, but has been a top performer over the last month trailing only energy and communications. The chart is starting to show positive consolidation signs and looks like it wants to move higher. It has been trading above its key moving averages and consistently making higher lows.

The sector is still down -1.4% year-to-date, but has been a top performer over the last month trailing only energy and communications. The chart is starting to show positive consolidation signs and looks like it wants to move higher. It has been trading above its key moving averages and consistently making higher lows.

Earnings. The end to the summer is highlighted by a few big name consumer staples in Smucker’s (SJM) and Campbell’s Soup (CPB). Both are trading near 52-week lows. We also have two high profile tech names reporting which are highlighted below.

Stocks in Focus…

Broadcom (AVGO) was quite volatile as a result of Nvidia’s quarterly report. Like NVDA, to a smaller extent, shares have been on a tear this year. The chipmaker is up 52.4% in 2023 and is trading near all-time highs.

As for its own earnings day, the stock has been on an epic winning streak. It has traded higher 10 quarters in a row for an average gain of 3.5%. The stock gapped higher last quarter after NVDA’s results and continued to trend higher when they reported their own earnings a week later.

Technically, the stock has only closed above $900 twice and struggled to make a sustainable move above this level. The MACD is showing potential signs of a bullish crossover, while price action failed to recapture the 50-day moving average. While the neutral range of $812 to $900 is very wide, news could break it out of this range when they report after the close on Thursday.

Salesforce (CRM) is the best performing stock in the Dow for 2023 after being the second worst performer in 2022. Shares are up 58% YTD, but haven’t gained much ground over the last three months as it trades just above $200.

Earnings reactions have been mixed over the last 8 quarters with 4 rallies and 4 sell-offs. The implied volatility for earnings day is +/- 6.2%.

Technically, the set up looks bullish with defined downside risk. Positive action in its RSI and MACD are setting up nicely for a bounce. The $200 level acted as support on its recent drawdown and should be used as a downside risk level for near term traders. A break below that threshold could lead to a faster decline towards the 200-day moving average around $184. They report after the close on Wednesday.

Economic Calendar

Monday - Case-Shiller Home Price Index 9:00

Tuesday - GDP (revision)

Wednesday - ADP Employment 324,000 8:15; GDP (revision) 2.4% 8:30

Thursday - Initial Jobless Claims, PCE Index 8:30

Friday - U.S. Unemployment Rate 3.6%, Nonfarm payroll 187,000, Hourly Wages year over year 4.4%

THE WEEK THAT WAS

The week was truly about two things - Nvidia and Fed Chair Jerome Powell’s speech at Jackson Hole. Both of those events caused intraday volatility in the markets, but when the week came to an end if you didn't know about the news and intraday swings, it just seemed like a boring week on Wall St.

On Wednesday the S&P 500 experienced a 1% rally for the first time since June 30th. However, that was erased the very next day. On Thursday both the S&P 500 and Nasdaq suffered their worst daily loss since August 2nd and the Dow had its worst day since March.

Two of the most well known stocks in the Dow made negative headlines due to historic price action. Nike suffered its longest daily losing streak at 11 days and broke $100 for the first time since November. While Disney’s decline continued again. This time the stock reached its lowest levels since its Covid lows of March 2020 and prior to that, prices not experienced since March 2016.

Jackson Hole. Market participants were on edge about this speech all week as the memory of last year’s direct and hawkish narrative sent markets tumbling lower. Traders feared that if Powell did not strike the right tone that markets could tumble again.

Thankfully there were no surprises from Powell this year. He stuck to his “still work to be done” narrative, while saying that progress has been made to fight inflation. The Fed will “remain data dependent” going forward and he did not back away from the possibility of future rate hikes. So to summarize, he was slightly less hawkish and cautious overall.

The latest survey on future rate hike pricing shows that expectations of another pause at the September FOMC meeting stand at 80% with only a 20% chance of a rate hike.

Nvidia (NVDA) followed one record quarter with yet another record quarter. Their numbers blew the doors off analyst expectations as they continue to grow at an accelerated pace.

Their quarterly revenue doubled year-over-year to $13.5 billion. Their earnings per share of $2.02 is 800% higher than last year. The stock traded as high as $520 after hours. That peak of its rally equated to a 250% YTD gain. The stock alone is responsible for 16.4% of the gain in the S&P 500.

However, despite the blow out numbers, price action did not follow suit. The stock which traded as high as $520 in the after hours, only opened at $502.16 during the regular session on Thursday. It immediately traded lower and actually closed on the lows of the day with a mere gain of 0.47. The stock fell $11.45 the following day, yet managed to finish the week higher by 6.3% thanks to a run up into the earnings announcement.

For a technician like myself this was an ominous sign. The pattern it formed is known as a “bearish engulfing candle”. Momentum in the stock has fizzled for now and the near term price may have peaked. As seen in the chart above, the gap caused by the earnings announcement was filled - also known as an “exhaustion gap” - and demonstrated that maybe price action has reached its pinnacle for now.

Regional Banks. Just weeks after Moody’s cut ratings for 10 U.S. lenders, S&P Global Ratings decided to join the party. They downgraded ratings on several US banks including KeyCorp and Comerica.

Many depositors have “shifted their funds into higher-interest-bearing accounts, increasing banks’ funding costs,” S&P wrote in a note summarizing the moves. Non-interest-bearing deposits have fallen 23% in the past five quarters, according to S&P, as a spree of Federal Reserve rate hikes prompted consumers to seek higher deposit rates elsewhere.

The KBW Bank Index (BKX) fell -2.1% for the week and has lost all the recent upward momentum. It may take some time for the regionals to rebound. Watch to see if it can hold recent support around $77. For a sustainable rally we would like to see the index recapture its 50-day moving average.

Heat Map. The mega caps did the heavy lifting this week to help the Nasdaq and S&P 500 finish in the green.

The rest of the market was rather mixed. Energy, industrials and certain specialty retailers were the biggest decliners on the week.

STOCKS IN THE NEWS

Shares of two of the hottest stocks during the Covid pandemic in Zoom (ZM) and Peloton (PTON) reported last week. Their results were quite different, but their long term charts remain too similar. ZM remains -89.7 below its all-time highs. While PTON is even worse. Shares are -97% from their pandemic peak.

Zoom shares did get a lift on the initial news of an earnings beat, but never failed to make much of a move one way or another. The stock remains mired near its lowest levels ever and in a tight trading range in the mid 60’s. For the week shares managed to gain 2.1% to close at $67.70.

Peloton (PTON) shares had their worst drop in six months after the company issued a weak revenue forecast. Shares skidded by 23% and to new all-time lows. For the week shares finished at their lowest levels ever closing at $5.83.

Retail Roundup. It was a busy week for the speciality, mid-sized and mall based retailers. Results were all over the place as the consumer continues to remain more and more selective and the Retail ETF, XRT (chart below), continues to struggle.

Also making headlines was the continued rise of theft (shrink) in stores that affected many company’s end results.

Shrinkage was highlighted as an issue at more stores than normal this quarter as companies like Dick’s Sporting Goods (DKS), Nordstrom (JWN) and even ULTA Beauty (ULTA) cited a strong rise in theft as a reason for concern now and in their forward looking statements.

Shares of DKS fell -23.8% to its lowest levels of 2023. JWN has declined over 37% within the last month and is just off yearly lows as it closed at $15.52. Lastly, ULTA traded lower by -10.1% this week and is now 27% below its 2023 highs.

Other Losers.

Macy’s (M) did beat on both earnings and revenue projections, however guided third quarter numbers would be well below street estimates and did not issue full year guidance. That overshadowed the near term positive results and shares dropped -20.1% for the week and closed at $12.08. These were its lowest levels since January 2021.

Foot Locker (FL) cut guidance for the second time this year as consumer demand continues to wane for the sneaker retailer. Shares were knocked to the curb as they dropped to their lowest levels since 2011. The stock closed at $17.22, down -31.9% for the week.

Some Winners.

Abercrombie & Fitch (ANF) jumped 23% on an earnings beat and raised its guidance as it expects sales to grow 10% up from its prior growth target of 2% - 4%. For the week shares skyrocketed to 52-week highs closing at $17.79, up 16.1%.

Gap Stores (GPS) shares gained 7.2% after reporting stronger than expected adjusted earnings. These results are the first report since their new CEO Richard Dickson took over. Dickson left Mattel and the Barbie empire and is now setting his sights on turning around the Gap Stores.

MARKET STATS

It was a wild end to the week as we experienced three consecutive days with swings of +/-1% in the S&P 500 and Nasdaq. When the dust settled the end results were mixed. Both the Dow and Russell finished slightly lower. While the Nasdaq and S&P managed to finish positive.

SECTOR WATCH

Technology (XLK) was the biggest winner of the week as it gained 2.4%. Other winners included Consumer Discretionary (XLY) and Real Estate (XLRE) with gains of 1.3% and 0.75% respectively.

IPO ACTIVITY

It was the biggest week of the year for IPO news. While nothing substantial launched during the week, two of the most anticipated IPO’s of the year announced their plans to go public on the Nasdaq in September.

Chip company Arm could be the biggest IPO since Rivian went public two years ago. According to Renaissance Capital it is estimated they will raise over $6 billion. Their roadshow is scheduled to launch after Labor Day. The market’s reaction to this IPO could open a floodgate of other tech companies that continue to wait on the sidelines for a better time to test the market.

The other high profile name that investors have been waiting for is Instacart (CART). This unicorn has been on the sidelines for years and is now ready for its big debut. The grocery delivery platform has been around for over a decade, continues to grow and actually turned profitable in 2023.

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