This week, the financial market has demonstrated a notable uptrend, contributing to an optimistic outlook for investors and traders alike. Here's a detailed analysis of the recent market movements, key indicators, and projections that could shape future trading strategies.
Overall Market Weekly Performance
The market this week has shown remarkable resilience and upward movement. The S&P 500 (SPX) notably ascended by 68 points, successfully crossing and closing above the 5000-point threshold. Similarly, the NASDAQ (NDX) experienced a significant rise, up by 361 points, while the Russell 2000 Index (RUT) also saw an increase of 47 points. Despite being the sixth week of the year, the Russell Index has only seen two weeks of upward movement, lagging behind due to the adverse effects of high-interest rates on the small-cap industry. The market trend remains bullish, especially in the SPX and NDX sectors. Interestingly, last week, the RUT showed signs of a potential turnaround, providing a buying signal and sparking interest for the upcoming week. The participation of small-cap stocks in this market surge is crucial, as SPX and NDX prices hover around the mean level, indicating a consensus among buyers and sellers on current valuations and suggesting a likelihood of continued upward price movement.
Market Breadth
Current market indicators reveal a mixed sentiment. The Fear and Greed Index stands at 78, indicating extreme greed, while the VIX, a measure of market volatility, is at a low of 12.93, suggesting a period of stability. However, the narrow VIX range of 11-15 signals potential volatility ahead. The SKEW (156) index points to a 20% chance of a significant market move, potentially a 300-point drop in the SPX within a week (Expect such sudden moves to occur). Despite the upward trend, many investors lean towards call options, with notable activity in stocks such as NVIDIA, SPY, TSLA, and QQQ.
Market Projections for the Coming Week
The upcoming week, marked by options expiry, is expected to bring heightened market activity. Projections suggest a possible range of +/- 63 points for the SPX, +/- 303 for the NDX, and +/- 56 for the RUT, indicating potential volatility on both the upside and downside.
Changing Correlations
Weekly analysis shows a high correlation among indices, with the VIX's inverse relationship to the SPX currently at only 12%. This tight correlation may soon experience a shift. Other assets like bonds, gold, Bitcoin, and copper show varying degrees of correlation, with oil and the dollar inversely related, hinting at possible market adjustments.
Impact of Copper Trend
Copper's declining trend since February, despite the market's overall high, signals a potential correction. Traders might consider protecting their investments or adjusting their strategies in anticipation of market changes.
General Economic Conditions
Amid high-interest rates, there's speculation about the Federal Reserve cutting rates aggressively by the year-end. The real estate sector, particularly commercial real estate, faces challenges, with a significant volume of loans due for renewal, potentially impacting the broader economy. These conditions suggest the Fed might reduce rates towards the end of 2024 or into 2025.
Market Impacting News Next Week
The upcoming week is packed with potential market-moving news, including FOMC announcements, CPI data, retail sales figures, unemployment reports, and more. These events warrant close monitoring for their potential impact on the market.
Summary
This week's market activity underscores the dynamic nature of the financial landscape, marked by significant gains across major indices. Despite underlying concerns regarding volatility and economic indicators, the current trend suggests continued growth. As we navigate through a packed news week ahead, staying informed and adaptable will be key to leveraging the opportunities and navigating the challenges that lie ahead. Remember, in trading, hope is not a strategy—stay vigilant and trade based on what you observe.