What to Watch This Week
Be sure to read through to the end to get all our insights for next week! Let us know if you have any questions and please show your support by sharing this newsletter. Thank you for reading & be sure to follow along with the accompanying podcast!
Top Things to Watch this Week:
- Shockingly positive jobs numbers is now driving more fear of hawkish fed on rate hikes. CPI Numbers to watch this week… Is this the price level from which the next round of selling ensues?
- Oil going parabolic, what is next? Triple digits likely forthcoming, but probabilities suggest a correction first. Should the pullback transpire as expected, I’ll be looking to go long aggressively.
- We need to watch the front end of the yield curve for more signals on the broader market.
S&P500 Analysis
We started last week with a significant bounce to the 61.8% retracement at 4600 then we ran into disappointment from Facebook earnings for the largest loss of market cap in the history of the markets. Amazon lucky came in for the save with nearly the largest market cap gain in history. It is clear that the volatility in earnings is incredibly high, as we are setting records in both directions. I think we are going to see some more sideway chop price action over the coming weeks with big up and down days, in other words, high volatility. This is something that we need to keep our eyes on.
Just 3 months ago, we were trading at 40 times multiple (CAPE) which is a 3 standard deviation event. The price to sales ratio was at 3 times in the SPY, and price to book ratio was at 15 times. We also saw some of the lowest volatility since 2017 and set 17 new All-time-highs in 2021.
The market is showing some very bearish signals in the wake of an important earnings week that could have helped propel prices to a V-shape recovery. Instead we are trading below critical price levels after signals of a hot economy with jobs numbers last week. These are asymmetric short entry levels for short positions meaning, the bias is to the downside in the short term.
Bond Market & Equity Volatility
Is this the price level from which the next round of selling ensues? Lets keep our eyes on bond yield curve flattening from global front end yields pushing up from rate hike expectations and volatility (VIX) for more signals. Most global yield curves are just 50 basis points away from inversion.
Energy & Crude Oil
Not only did crude oil hit $90.00, but it has now blown through that level with a decisive parabolic breakout. Does this continue, and more importantly, when does the stock market start to care?
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