Weekly Trader's Outlook

If you read last week's blog you might recall that I was slightly bullish, as markets were waving the green flag, following Powell's end of the week remarks at the Jackson Hole symposium. Breadth strengthened, becoming broader based, with the predominantly cyclical sectors of Consumer Discretionary, Industrials, and Financials leading the charge. That momentum initially carried forward into this week, as markets reacted favorably to mostly better-than-expected economic data, including an upside revision to the GDP data, better-than-expected Consumer Confidence, and Jobless Claims that were in-line. 

In fact, on Thursday, the S&P 500 rallied to a new all-time-high intraday price of 6508 closing at 6502. We even saw the Russell pick up steam, as it continued its August rally of nearly 7% and pushed toward all-time high levels not seen since last November. Friday's tech led sell-off looks as though it will pull the major averages down slightly for the week, at least as of my 1:00 p.m. ET write time. There may be some investor concerns that the AI spend, which has been a major market driver, could be slowing. I will cover that idea further in the earnings section below.

On the economic front, the major data point, outside of the positively revised GDP number, occurred on Friday, as we got the Federal Reseve's favored look at inflation, the Personal Consumption Expenditures (PCE). While in line, it did point to a higher price environment than we've seen in a few months. Core PCE data showed a m/m increase of 0.3% and a y/y increase of 2.9%, moving further and further away from the Fed's stated goal of 2.0%. Markets didn't like the data, and Futures sold off following the announcement. Consumer spending rose in July, up by 0.5%, the most in four months indicating resilient demand in the face of stubborn inflation while the University of Michigan Consumer Sentiment data came in below expectations, 58.2 vs. 58.6. For now, it seems Americans continue to spend, but it's unclear how long that momentum will last amid rising prices and lower consumer sentiment.

Perhaps the most anticipated event of the week was Wednesday's earnings release for Nvidia Corp. (NVDA). Shares were a bit all over the map from Wednesday's announcement through midday Friday, as we've seen a range from $172 - $184. Markets had priced in about a 6% move heading into earnings, and as of now that seems a bit rich. Some highlights from the earnings announcement included Q2 y/y revenue growth of 56% to $54 billion, despite not selling a single H20 chip to China during the quarter. While that number would be the envy of almost any company in the AI space, remember it was just last May, that Nivida announced a 69% y/y growth rate. Other metrics looked solid, though perhaps not as eye-popping as in the past thanks in part to the law of large numbers. Nvidia also announced it authorized $60 billion in new share repurchases.

Tech investors seemed to look past Nvidia's slowing growth until Dell Technologies (DELL) and Marvell Technology (MRVL) announced their respective earnings numbers on Thursday. DELL fell over 10% after the company reported results that showed weakness in server margins. Dell booked $5.6 billion of AI server orders in the fiscal second quarter, down from $12.1 billion in the previous period, but the company did raise its annual sales projections. MRVL plunged 17%, as second quarter data center revenue rose 69% but missed analysts' consensus. Earnings per share and revenue were in line with expectations, and guidance also was near consensus views.

At the time of this writing (1:00 p.m. ET), all of the major indices are lower on the day (DJI - 108, SPX - 44, COMPX - 263, RUT - 13) as markets finish the week slightly lower, with the exception of the Russell which looks to eke out a slight gain. Today's selling is not broad-based, as six of the 11 sectors are positive on the day, but the weakness in IT, Consumer Discretionary, and Communication Services (the big three growth sectors) is too much for the markets to bear given their size and Market Cap. Interestingly, however, the only three sectors that are down on the week are the defensive sectors Consumer Staples, Utilities, and Health Care. Today's action could be a minor pullback, a reassessment of risk, as markets consider the runway for AI spend, given the week's earnings results. After all, breadth hasn't broken down considerably (S&P still has 67% of stocks above 200-day MA), volatility hasn't expanded dramatically (VIX still below 16), and yields haven't blown out either (10-year yield still at 4.22%). In my opinion, this type of action is what you tend to see in low volume, holiday-shortened weeks, when markets are consolidating around highs.  

On the economic front, jobs data will be front and center, with JOLTs Job Openings, ADP Employment, Challenger Job Cuts, Jobless Claims, and finally Nonfarm Payrolls on the docket next week. Friday could be a big day, as economists are only expecting payrolls to expand by 75,000 jobs. That number may prove a low hurdle, or should it miss, a bad sign for the job market. Either way, you can be assured that both the markets and the Fed will be paying close attention to the data.

From a technical perspective, all the major indices are still very close to their all-time high prices, in fact, the S&P 500 hit an all-time high price yesterday. The Nasdaq, the major laggard for the week is only down 0.26%, while the Dow and S&P 500 are both down 0.25% and 0.16%, respectively. The Russell is on track to close the week slightly higher, up 0.10%, signaling the small caps are participating in the move. Remember, the Russell is up 7% for the month. All the major indices are trading above their near-term MA indicators (20-day MA), and all have RSIs near or north of 60. This is why I remain slightly bullish for the upcoming week but could see some consolidation at these levels.

• Monday (Sep. 1): Closed for Labor Day
• Tuesday (Sep. 2): ISM Manufacturing, Prices Paid, New Orders, Employment
• Wednesday (Sep. 3): MBA Mortgage Applications Index, JOLTs Job Openings, Durable Goods, Factory Orders
• Thursday (Sep. 4): Continuing Claims, Initial Claims, ADP Employment Change, Challenger Job Cuts, ISM Services, Prices Paid, New Orders, Employment
• Friday (Sep. 5): Nonfarm Payrolls, Unemployment Rate, Labor Force Participation

• Monday (Sep. 1): None
• Tuesday (Sep. 2): Nio Inc. (NIO), Signet Jewelers Ltd. (SIG), ZScaler Inc. (ZS), Healthequity Inc. (HQY)
• Wednesday (Sep. 3): Dollar Tree Inc. (DLTR), Campbells Co. (CPB), Macy's Inc. (M), Salesforce Inc. (CRM), Figma Inc. (FIG), Hewlett Packard Enterprise Co. (HPE), Credo Technology Group Holding (CRDO)
• Thursday (Sep. 4): Ciena Corp. (CIEN), VinFast Auto Ltd. (VFS), Broadcom Inc. (AVGO), Copart Inc. (CPRT), Lululemon Athletica Inc. (LULU), Samsara Inc. (IOT), DocuSign Inc. (DOCU)
• Friday (Sep. 5): ABM Industries (ABM)

The S&P 500 (SPX) is on track for a - 0.15% weekly loss on the heels of a big week of macro and micro data, namely the PCE and, GDP data and Nvidia earnings. Markets held up relatively well, even as the data suggests higher prices abound for consumers, as tariffs make their way into the system and the once 60-70% revenue gains for the $4T-valued Nvidia may be a thing of the past. The SPX RSI is 58 which remains constructive, although it is declining. I even added the ADX to today's chart to show the trend is starting to lose a little steam. However, as some traders believe, a number above 25 indicates the trend is still in place. Breadth is still constructive, volatility is constrained, and hedging activity remains subdued. In addition, the SPX remains above its 20-day MA, validating, at least in the short-term, that the uptrend remains in place. A retest of the 20-day MA 6420 wouldn't be out of the question for next week, nor would some consolidation around these levels shock me, but should either or both of those occur and hold, then the bull case should continue.

Technical translation: intermediate-term bullish, near-term sideways to bullish

The chart of the S&P 500 Equal Weight Index (SPXEW) looks stronger than the SPX, as it finally broke through its December highs and looks like it is trying to hold those levels. I will be watching this theme next week to see if the initial breakout holds. The trend also appears to be gaining some steam based upon the ADX now up over 25. This broadening rally theme is also confirmed by the fact that eight of 11 sectors will likely finish the week in the green. There continues to be participation of the other 493 stocks, outside the Mag7, which is powering index higher, at least for now.  

Technical translation: intermediate term bullish, near-term bullish

There was interesting news from the Commodity Futures Trading Commission regarding Crypto Firms this week. Per Bloomberg, the Commodity Futures Trading Commission has issued an advisory clarifying how foreign platforms can register as foreign boards of trade to offer derivatives to American traders. North American markets remain highly attractive to these Crypto Firms, as they make up the largest cryptocurrency market globally, with about $1.3 trillion in on-chain value received between July 2023 and June 2024. That figure represents about 22.5% of global activity, according to data compiled by crypto researcher Chainalysis. This could lead to a path back to the US for firms such as Binance Holding Ltd which would potentially lead to competition for major domestic players like Coinbase Global, Inc. and Kraken.

The Bloomberg chart below shows the current percentage of members within the S&P 500 (SPX), Nasdaq Composite (CCMP) & Russell 2000 (RTY) that are trading above their respective 200-day Simple Moving Averages (SMA). Stocks rallied into the close of the week, after showing early weakness, leading to a nice bump in breadth in the SPX. On a week-over-week basis, the SPX (white line) breadth jumped to 67.13% from 64.33%, the CCMP (blue line) rose to 51.39% from 45.27%, and the RTY (orange line) saw the biggest jump, moving to 62.42% from 53.81%.

Market breadth attempts to capture individual stock participation within an overall index, which can help convey underlying strength or weakness of a move or trend. Typically, broader participation suggests healthy investor sentiment and supportive technicals. There are many data points to help convey market breadth, such as advancing vs. declining issues, percentage of stocks within an index that are above or below a longer-term moving average, or new highs vs. new lows.

This Week's Notable 52-week Highs (258 today): Iren Limited (IREN + $3.25 to $26.29), Cipher Mining Inc. (CIFR + $0.50 to $7.52), Alphabet (GOOGL + $1.65 to $213.30), Bank of America Corp. (BAC + $0.32 to $50.81)

This Week's Notable 52-week Lows (22 today): Bollinger Innovations Inc. (BINI - $0.06 to $0.26), Luminar Technologies Inc. (LAZR - $0.05 to $1.71), SOS Limited (SOS - $0.47 to $1.16)