Market Momentum: Your Weekly Financial Forecast

What to expect for June 24 - June 28, 2024

Originally published at volumeleaders.substack.com.

Weekly Wrap

Another interesting week, with significant developments across various sectors and economic indicators. Both the S&P 500 and Nasdaq reached new record highs, driven primarily by robust performances in the tech sector. Nvidia's rise to become the world's most valuable company exemplified the strength in technology stocks, particularly those involved in artificial intelligence. The energy and real estate sectors also showed notable gains, reflecting broader market optimism.

Retail sales in May increased by a modest 0.1%, below the forecasted 0.3%, indicating cautious consumer spending amid high borrowing costs and prices. Despite this, household net worth hit an all-time high of $160 trillion in the first quarter, largely driven by gains in equity holdings and real estate. Industrial production showed strength, contributing to a mixed but overall positive economic outlook. However, the labor market remained stable, with ongoing concerns about the potential impact of high interest rates on consumer behavior.

Investor sentiment was buoyed by expectations of potential interest rate cuts by the Federal Reserve. The Fed's decision to hold interest rates steady at 5.25% - 5.5% was seen as a precursor to possible rate reductions later in the year, aimed at supporting economic growth and easing borrowing costs. The CME FedWatch tool showed a 90% chance rates are unchanged after the July FOMC meeting but a roughly 66% chance of being at least 1/4-point lower after the Sept meeting.

The technology sector, especially semiconductor stocks, continued to drive market performance. Nvidia's significant market value rise underscored the dominance and investor enthusiasm for tech companies, particularly those with strong AI components, despite chip names ending the week with some softness (see weekly performance heatmap below). Energy and real estate sectors benefited from the overall positive market sentiment, with investors seeking opportunities in sectors expected to perform well under potential interest rate cuts. Of note, Crude notched notable gains, closing over $80 a barrel for just the second time since April.

All-in-all, markets were characterized by record highs in major indices, driven by strong performances in the tech, energy, and real estate sectors. Economic indicators presented a mixed but overall positive outlook, with retail sales growth slowing but industrial production showing resilience. PCE (Personal Consumption Expenditures) Price Index is the Fed’s preferred yardstick for measuring inflation. We saw annual rates of 2.5% in both January and February before rising to 2.7% in March and April and the latest report is due this Friday.

Major Indices

SPY

Last week I called for two-way tape in the shortened trading-week-to-come (due to Juneteenth) and we were gifted a ride up and a ride down, all capped-off with an over-hyped, super-grindy Opex with absolutely monster prints you must see in the VL platform. This week I’m cautiously on the hunt for early downside action to some areas of interest but ultimately looking for balance over the upper HVN shown in the anchored profile and continued development at $547 or $542 before PCE on Friday. PCE is sufficiently important to be market-moving and I think it just might be the news the market needs to seek “fair value” and a new auction somewhere else. Right now we’re seeing a broadening out across the market via signs of improving breadth, a pattern I discussed in last week’s stack.

Our interactive Institutional Dollar Index chart for SPY is showing sky-high readings so we know major players are trading big bucks up here. Yes, Opex played a part in the elevated readings but there are enough compelling clues in this stack and the prior stack alone to suggest that “more” is “different” this time and to start hunting a transition in the tone and tempo of the market.

Let’s break down the charts.

Top Pane / Daily View

Price has closed under the 5 DMA (white line) at $545.98. This is one of the simplest ways you can keep yourself on the right side of price - when we’re closing above, seek longs; when we’re closing below, seek shorts. You can review for yourself how closing below has in the past been an invitation of short-term weakness; likewise, trying to short when price keeps closing above has been a fool’s errand. The second indicator that paints the green lines under price in uptrends and red lines over price in downtrends is called Supertrend. It simply calculates a stopline based on an ATR multiple. You know as well as I the saying made famous by John Maynard Keynes: “Markets can remain irrational longer than you can remain solvent”. Getting offsides in a trade is one thing; staying offsides is a whole other and if you want to remain solvent you have to have a mechanism for ripping the band-aid off and closing-out. It’s for this reason that I relent to these 2 indicators as the final arbiters of any offside trades and I lean on them to provide bias on a day-to-day basis. The rules are simple:

You don’t have to follow these rules but you definitely need something. I’ll talk more about the benefits of systematizing your trade in future stacks. Right now, despite the invitation of short-term weakness as indicated by the 5DMA, Supertrend is clear that bulls are still in control of the primary trend and bears are going to have to get a daily close under $538.70 to change my mind. There are 2 other important things to note on the daily and the first is the acceleration in volume. In the face of several sessions of waning volume, we’re seeing something different and you’ll be surprised how something different is the signal. The second is the measured move (annotated “MM?”)…very nearly $38 in both legs, a curious coincidence if it turns out to be nothing else.

Middle Pane / TPO View

We’ve got some interesting artifacts of the auction that give us nice areas to engage. As traders, we want to be deliberate about when and where we engage the market to avoid over-trading - this simple behavior change can have a profound impact on your PnL. All of the 5 largest prints over the past 30 days have been in areas where the auction has been able to get a lot of business done, as evidenced by the HVN’s in the anchored profile; these are areas of heavy chop but the move out of these areas has provided clean directional trades that have allowed observant and flexible traders to play zone-to-zone quite nicely. Three of the five largest prints over the past 30 days have now found themselves clustered at the highs and have thusly moved POC in our anchored profile to the highs - this all, right now, presents as supply to me and is one of the reasons I am seeking continuation to the downside early in the week. We also have poor lows at $541.75 and $539.75…places where selling just mechanically turned off and we can likely expect re-tests at some point. $539.75 is the top of the untested-gap so I’ll be watching to see how much sellers can fill if they get down there.

Bottom Pane / 30m View

The most notable thing in this view is the gap under the trendline. Gapping under/over trendlines and SMAs is typically seen as a sign of strength or commitment. Supertrend is also used on this chart as a way of informing bias on lower timeframes but it changes intraday so I won’t call out any of its levels here. The other thing to note on this chart are the long periods of sideways chop before an explosive pop - it’s less like price discovery and more like the market is engineering liquidity. As always: maybe something, maybe nothing; I feel like these are last gasps and you already know my early-week bias, so we’ll soon see.

QQQ

So, right after the markets closed on Friday, Truist comes out and says they’re cutting technology to neutral from overweight:

Impeccable timing. We looked at Large-Cap Growth’s staggering performance in last week’s stack and the news isn’t a shocker but someone calling it what it is combined with some of the recent weakness in chips and a couple other factors may create a small drag on tech in early trading this week. The breadth in the Nasdaq 100 vs Nasdaq composite confirms what we already know about which corner of the market everyone is piled into.

However, the exodus from growth may already be under way as there are some early indications suggesting rotation. Here, seen by factor:

Here, seen by sector:

And lastly, by major indices/thematic ETFs:

Note the pop in VIXM. Even when we take a look at normalized performance month-to-date, yes, QQQ is a clear winner but look at who has crept into 2nd and 3rd place:

Continue monitoring relative performance across various slices of data looking for the rotation trades. VIX, while dormant for quite some time, is apparently starting to rustle from its slumber a bit so keep an eye on vol components and surrogates

In terms of institutional involvement, like SPY, the Q’s did not disappoint: