KEY
TAKEAWAYS
- Inventory market unfazed by at the moment’s jobs knowledge
- Yields rise, US greenback rises, and equities shut the week comparatively flat
- Market breadth continues to be sturdy, indicating the inventory market remains to be chugging alongside
It was a little bit of a seesaw week within the inventory market, however, total, the market appears to suppose every thing is wanting good.
The Could employment report indicated that the change in Non-Farm Payrolls (NFP) was stronger than anticipated. It got here in at 272,000, considerably greater than the estimated 190,000. The unemployment fee climbed to 4%, and wages rose 4.1% previously yr.
The market’s preliminary response? Effectively, treasury yields spiked after the report was launched, and fairness futures turned sharply decrease. Nonetheless, that did not final lengthy. At one level, the S&P 500 reached a brand new all-time excessive however closed decrease. The variety of added jobs weakens the likelihood of an rate of interest reduce. However is not that what the market is anticipating? Lengthy-term, issues are wanting positive. Let’s take a better look.
Beginning with the weekly chart of the S&P 500 ($SPX), it is clear the development remains to be bullish, as is momentum (see chart under). Till this adjustments, there is not any purpose to suppose equities are organising for a big selloff.
CHART 1. WEEKLY CHART OF THE S&P 500 INDEX. The bullish development remains to be intact and momentum continues to be sturdy.Chart supply: StockChartsACP. For instructional functions.
The weekly perspective stays sturdy, with the S&P 500 buying and selling above its 21-week exponential transferring common (EMA). The index bounced off its 21-week EMA (pink line), and, excluding a reversal final week—which did not put a lot of a dent in its bullish path—it continues to development greater.
The Linear Regression Forecast (LRF) indicator (blue line) additionally signifies an upward development. Because the LRF is predicated on the road of greatest match, it may be thought of a very good indicator to measure the near-term development. The final level of this indicator forecasts worth route, which, within the weekly chart, factors greater.
Momentum additionally appears sturdy, with the transferring common convergence/divergence trending greater and the stochastic oscillator properly in overbought territory. So, from a weekly perspective, the S&P 500 appears bullish.
Does the image change on the each day chart? Let’s have a look.
CHART 2. DAILY CHART OF THE S&P 500 INDEX. It might be a bit extra uneven than the weekly chart, however the development remains to be bullish, and the momentum is powerful.Chart supply: StockChartsACP. For instructional functions.
The each day chart is a bit more uneven than the weekly one, however it nonetheless suggests the S&P 500 is trending greater. The market had a bumpy experience on the finish of Could, however it recovered.
Watching a breadth indicator to see if it helps the development is a good suggestion. There are a number of breadth indicators obtainable in StockCharts.com, such because the Advance-Decline Line, McClellan Oscillator, and the Bullish P.c Index (BPI).
The chart under shows the BPI for the S&P 500. When the BPI is above 50, it signifies that bulls have the sting, with 70 representing overbought ranges and 30 oversold, though you should use completely different thresholds.
CHART 3. S&P 500 BULLISH PERCENT INDEX. The BPI signifies the S&P 500 remains to be bullish.Chart supply: StockChartsACP. For instructional functions.
It is attention-grabbing to notice that the S&P 500’s BPI hasn’t been under 30 because the finish of October. This implies that the general market continues to be bullish.
One other confirming indicator is the Volatility Index ($VIX), which continues to be low. Traders usually are not displaying any indicators of panic.
Bond Market Motion
One attention-grabbing piece of the inventory market puzzle is the bond market, which tends to maneuver on the roles knowledge. With yields coming down, bond costs began to maneuver up. The each day chart of the iShares 20+ Yr Treasury Bond ETF (TLT) under reveals that TLT broke out above its downward-sloping trendline and broke above its final vital excessive (Could 16). However Friday’s worth motion despatched Treasury yields greater, and bond costs fell under their Could excessive.
CHART 4. DAILY CHART OF ISHARES 20+ YEAR TREASURY BOND ETF (TLT). After breaking above its final excessive, bond costs declined. It stays to be seen if this can be a correction or an indication that bonds are nonetheless struggling.Chart supply: StockChartsACP. For instructional functions.
Whereas at some point’s motion would not signify a development reversal, it is a good suggestion to observe the motion within the bond market. Add this chart to your ChartLists and regulate whether or not TLT breaks above its Could excessive. If it does, it may additional verify that bonds are attempting to come back off their lows.
One other level to not be missed is the motion within the US greenback, one other asset that reacts to jobs knowledge. The dollar spiked in at the moment’s buying and selling. So, we have now a state of affairs the place bond yields spiked, the greenback spiked, and equities had been comparatively flat. On the opposite finish of the spectrum, metals bought clobbered. Do metallic merchants know one thing concerning the inflation knowledge?
All the pieces rests on subsequent week’s motion, which is a data-heavy week. There’s the Shopper Worth Index (CPI) and FOMC assembly. Provided that at the moment’s jobs knowledge confirmed that wages knowledge got here in greater, you may guess the CPI knowledge shall be watched intently.
Let’s examine what the Fed says subsequent week. The CME FedWatch Software reveals a small likelihood of a fee hike within the September assembly, however that would change. The important thing level to pay attention for is whether or not inflation is coming down on the fee the Fed desires to see. The market has priced in a single fee reduce chance this yr. If we hear in any other case, the market may react both approach.
The Takeaway
Technical indicators look good, which means that the inventory market remains to be bullish. However watch market breadth and the VIX. In the event that they begin to flip—it must be a big reversal—then you can begin worrying. In different phrases, should you suppose the inventory market is toppy and it will dump, anticipate the confirming indicators to indicate you the market will dump.
Finish-of-Week Wrap-Up
- S&P 500 closes down 0.11% at 5,346.99, Dow Jones Industrial Common down 0.22% at 38,798.99; Nasdaq Composite down 0.23% at 17,133.13.
- $VIX down 2.86% at 12.22
- Finest performing sector for the week: Know-how
- Worst performing sector for the week: Utilities
- High 5 Massive Cap SCTR shares: NVIDIA (NVDA); MicroStrategy Inc. (MSTR); Tremendous Micro Laptop, Inc. (SMCI); Vistra Vitality (VST); Applovin Corp. (APP)
On the Radar Subsequent Week
- Could CPI
- Federal Reserve’s rate of interest resolution and press convention
- Could PPI
- June mortgage charges
- June Preliminary Michigan shopper and inflation expectations
- Fed speeches (Goolsbee, Prepare dinner)
Disclaimer: This weblog is for instructional functions solely and shouldn’t be construed as monetary recommendation. The concepts and techniques ought to by no means be used with out first assessing your individual private and monetary state of affairs, or with out consulting a monetary skilled.
