Last week we had one of the greatest weeks since the beginning of the year with 4 green days in a row. Nasdaq ($NDX) had 5 green days in a row, the most since the beginning of the year. A relief rally was likely As I suggested in my posts on Semiconductors and on Chinese tariffs, and hope my levels helped you navigate through the week. On Friday's close - $NDX pinned 12182 level and $SPX pinned 3900 level. Although Biden hasn't announced yet the Chinese tariffs catalyst (seems like politics are hard to predict), I believe that high chance the market priced in this catalyst which helped fueled the rally. Next week is a critical week for bulls and bears with full of data and economic and political events. Let's dive in and see what awaits us in the upcoming week and how to prepare.
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Ok let's begin, we have a very busy week full of data and economic and political events.
Last Friday, Labor data was released. The unemployment rate came in at 3.6%, unchanged and Nonfarm Payrolls 372K (Forecasted 229k) Nonfarm payrolls rose 372K for June vs. 270K expected and 384K in May (revised down). These are important data for the Fed to determine if the economy is strong to deal with the tightening monetary policy. Strong Labor Data keeps a very hawkish July Fed in play.
As a result of the Data, 2-year Treasury yield rose to 3.11% and the 10-year rose to 3.07%. The yields remained inverted, a key recession warning (A yield curve inversion is where the yield on the short end of the curve is greater than the yield on the long end of the curve. A yield curve inversion is a leading indicator of recession).
This Wednesday, CPI June y/y will be released. last month came in at 8.6% which was surprising as the street was expecting lower numbers as they thought the inflation peaked in Q1 2022. And as a result, the market faced a big selloff and the Fed raised the interest rate by 75 basis points vs. the 50 basis points expected. This time, the street is expecting numbers will come in at 9% (!).
How does the market come to this number?
- Brent Crude Oil was ranging between 107-122$
- Gasoline broke an all-time high with 5$
- July 4th BBQ was 17% more expensive than last year.
In my opinion, if the numbers will be 9% and up we will face a big selloff, because of fear that the Fed may raise the interest rate by 100 basis points (which is unlikely in my opinion, but the market will want to price in this scenario anyway). Any number between 8.6% to 9%, still is bad for the market but the market may not react so badly to it (if you remember, the market priced in 80% that the Fed will raise 75 basis points by the July meeting), and any number below 8.6% (which is unlikely in my opinion), we will have nice green days ahead, depends on earnings season which kicks in on Thursday.
Thursday, There is a Jobless Claims report, I expected numbers to be as forecasted and nothing that will surprise the Street. In addition, Thursday is the official first day of the Earning Season with big banks' reports. Guidance of the Banks will be important as they will guide us where this Earnings Season is headed to. Bad Guidance with bad CPI Numbers, I can see the Indices sell-off with $SPX back to 3630-3700 levels and $NDX back to 11040-11638.
TSMC (The Taiwanese giant chips maker) will also report on Thursday, I have expressed my opinion before that the Semiconductors sector has yet to see the bottom, and TSMC's report + Guidance could be the catalyst that will cause a sell-off in the sector.
Friday, Michigan Customers' Expectations and Sentiment will be released. This report is important to the Fed. The fed wants to reclaim the trust of American customers amid rising prices. if the report will come bad, it can fuel the sell-off we talked about. In addition, on Friday Biden will fly to Saudi Arabia. Although the street doesn't expect any agreements regarding oil price and/or supply because of this visit. It is still worth following this visit. any surprise will cause the oil to sell-off.
I recommend you to read my article about the Fed minutes, to understand better how the Fed looks at the Data that we talked about in this article.
On the Technical Side, the indices and $AAPL are on triangle convergence, just in time for the data starting from Wednesday. I expect Choppy Monday and Tuesday while big moves start from Wednesday. Any positive surprises in data will cause a break in resistance. on the upside, for $SPX I would look for 3950,4000 and 4037. $NDX to 12492 level. $AAPL to 149.44. If the data are bad (which is in my scenario), I would look for $SPX 3850, 3800, 3750,3700, and 3630 levels. $NDX 11964, 11746 and 11368. $AAPL to 143,140,138 and 135.
US10Y broke the downtrend. if it keeps continues up, I would watch for it as guidance amid the data on Wednesday.
Wishing you a great week!
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This article does not contain investment advice or recommendations. Every investment and trading move involves risk, readers should conduct their own research when making a decision. The views, thoughts, and opinions expressed here are the author’s alone.