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Sunday's Coffee - The upcoming week 25/07 - 29/07

Sunday's Coffee - The upcoming week 25/07 - 29/07

Fueled by hopes that the inflation has peaked, bad Housing Starts and Buildings permits numbers, and good earnings from Goldman Sachs and Tesla, the bear market continued to rally with the S&P 500 ($SPX) gaining about 10.3% to 4,012 points and Nasdaq 100 ($NDX) gaining 14.61% to 12,660 points since its bear market trough on June 16.

Last Friday, Snap reported disappointing second-quarter results in shares down 39% and caused concerns among Ads-based companies such as Google ($GOOGL) and Meta ($META) amid their earnings this upcoming week.

This upcoming week we will have FOMC with Rate Decision, GDP Q2, full of tech companies' earnings, lots of key data and events making it the most important week in this quarter and will be a compass for the next direction of the market. Let's dive in and see what awaits us in the upcoming week and how to prepare.

I will watch several key data that are important for the market:

  • Tuesday - Home Sales. The previous week we had Housing Starts and Building Permits Data and the outlook is not pretty. It’s no surprise that housing has been coming down with mortgage rates soaring. With higher rates, fewer people are likely to take on home loans. This is simple and it’s a given. It also means that as one of the Fed indicators for hiking rates, the Fed will see it as a positive sign and will be less hard with the hiking this FOMC. The markets think the same as me, since the data on Tuesday last week, the odds for 100bps were down up to 20% while the odds for 75bps were up to 80%.  
  • Wednesday - FOMC + Interest Rate Decision. FOMC day is a very violate day. I strongly suggest not trading on this day as until 2:00 pm the market is mostly choppy, killing premium (if you trade options), and then at 2:00 pm will go up and down catching stops before making a real move. I suggest that the real move to be around 02:45pm (during the Fed's conference). The expectation is 75bps and I do agree with it as the Fed doesn't like to surprise the market (at least for now). how the market will react to 75bps? may go up on Wednesday and Thursday tanks with GDP Data. I think it will depend on the Fed's guidance at the conference.
  • Thursday - Q2 GDP. this data is important as it officially will tell us if we are getting into recession or not. Yesterday, Yellen said that the "U.S. economy slowing, but recession not inevitable". In addition, the White House released a statement that tries to redefine a recession as one in which consumers are not borrowing on credit cards to pay for inflation, and neither is the labor force inadequate for the size of the economy. To be honest, nobody believes the White House, Yellen, or Powell. it's like they said "the inflation is transitory" and we saw what happened. The markets don't believe them, and with bad Q2 GDP data, the markets will tank and start to price a recession.
White House's Statement on Sunday
  • Friday - Core PCE Price Index y/y. The "core" PCE price index is defined as personal consumption expenditures (PCE) prices excluding food and energy prices. The Fed prefers to look at this data as the inflation ratio and not PCI as it can't control the food and energy prices. The Conesus is 4.8% which is 0.10% up than the prior. If we follow the market's reaction to PCI data last week, we may see a hope that it is the peak. but it could be another fuel to the fire if the markets will bleed because of the FOMC, GDP, Home Sales, and Bad Earnings.
Source: Bloomberg

The Earnings season continues this upcoming week with the big tech reporting among other important companies. Their guidance will give me info about the inflation pressure and recession fears.

I will be watching $MSFT, $GOOGL, $SHOP,  $META,  $INTC, $AMZN, $AMZN and $AAPL.

Source: Earnings Whispers

Technical Analysis

  1. Indices couldn't break a major resistance on Friday resulting in a selloff. What concern me is that VIX closed red on Friday, with 5 red weeks in a row, at very critical support where in the past it bounced. In addition, VIX Calls >40 are at an all-time high. Second, the yield curve - is in its deepest inversion and shaping up to be the longest in the last 20 years. What is scary is when it inverts by a large measure and remains inverted for a long period. This is exactly what we are seeing now. I expect a red week following FOMC and GDP on Wednesday and Thursday. I recommend following level by level. $SPX 3935, 3873, 3830, 3786, and 3640. $NDX 12043,  11853, 116622, 11489, 11333 and 11059. Please see the charts below. Regarding $VIX, with maximum fear, we may see 30-32 but also VIX also could stop at 27-28 before moving higher in August.
  2. $DXY - The Dollar founds support and not breaking it. Red week for Equity Markets means the Dollar will try to make a new high with 109.3 and 111.553 as targets.
  3. To validate my opinion, $HYG couldn't break the downtrend line since the beginning of 2022. I'm watching it to check the bottom again at 72.

4. $AAPL had a crazy week.  A week ago when it closed at 17% gain I said apple is ready for some red days, but it amazed me and finished at around 20% gain since the beginning of the bear rally. If we look at the bigger picture, we can see an H&S Pattern, hitting a very strong resistance and not breaking. This week Apple is reporting. if you remember last week Apple said it plans to slow hiring and spending in some of its divisions next year as the iPhone maker faces a possible economic slowdown. The Earning's Forecast is very important for apple. A bad forecast will result in a big selloff in the stock and the market. I'm pretty sure Apple is gonna finish red this week and maybe the weeks after.

5. Amazon will report this week. This year the Q2 earnings will not include Prime Days sales, add to that in April Amazon said it is overstaffed and need to cut back. I expect Amazon to have a weak report. Amazon didn't break the downtrend line and could check the low again this week or the next week.

6.  Meta was down Friday due to Snap's disappointment report. Snap attributed its results to a challenging economy, slowing demand for its online platform, Apple’s 2021 iOS update, and competition from companies like TikTok. Meta is suffering from the same problem. In addition, Meta is burning cash on Metaverse products and has no sight of these products will become profitable. I wouldn't long Meta at this point. although lots of Investors think Meta is at an attractive price, I think it can drop even lower. Levels at the chart.

7. Google was also down on Snap earnings. I like Google, it has a variety of different incomes so even if the Ads revenues will disappoint, they can cover it up with other incomes. I don't expect a big move in Google. In case it will drop amid all the data and the events, it can find support at 100, and if not, quickly drop to 96 after filling the volume gap.

8. Microsoft couldn't break the downtrend line. Earning this week. I have no doubt Microsoft may beat the expectations but Forecast is what interesting to watch. I suggest following the levels in either direction - up or down. Levels on the chart.

9. Shopify is consolidating inside a downtrend channel in the same price range since May. The earning will make it or break it. I like Shopify, I love their product and what they did to the web and eCommerce world. I do think it will keep growing and with the plans to expand into NFTs and Crypto I can see sustainable growth. the problem may be when small businesses will cut costs during recession time and may pay less for Shopify's addons/products. For me, the Forecast is the most important, and it will determine the stock price. I would love to buy Shopify shares for around 23-26$, if it doesn't get there when the market will finally bottom (we are not yet there), I will collect at whatever price it will be.

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Wishing you all a great week!

Cheers,


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.