Weekly Market Analysis: Recap and Forecast. The Week of May 27, 2024

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It pays off to have a plan of focus. Last week, we placed our emphasis on $QQQ and $NVDA besides other tech stocks and it paid off handsomely. We had multiple green trades on $QQQ and a few good ones on $NVDA, $SNOW, $AMD, then closed the week with nice trades on $MRNA and $FSLR. We currently have $INTC and $AMD.

With first-quarter inflation readings coming in hotter than expected, some investors think it may remain stuck. The FOMC meeting minutes released last Wednesday, showed that interest rate hike is back on the table if needed to control inflation. This is contradicted from chairman Powell’s May-1 statement when he put a low chance on a future rate hike; and that might have seen as opening the door for May’s rally so far.  The question now is whether “risk-on” appetite induced by hopes for technology-driven productivity gains, as well as first-quarter corporate earnings results that have held up reasonably well, can coexist with inflation still running in the 3% range.

Or in another word, can the stock market keep rallying even with inflation stuck above 2%? Per the language from last week meeting minutes, if inflation accelerates toward the end of the summer, this would likely put rate hikes from the Fed on the table. In addition, the stock market would probably need to correct at some point, given how much investors have been hoping for lower borrowing costs this year. Now if there is any deviation from the narrative that “the market still has this Goldilocks view that inflation is going to come down, regardless of the fundamentals we see, and the Fed won’t have to hike,” we may see the market corrects itself, according to some wall street analysts.

Another factor to keep in mind as we’re moving into the summer is the signal from the bond market. While the equity market enjoys its rally in the last 6 months, the bond market is sending a different signal. The yield curved has been inverted for the longest time in U.S. history; while it’s nothing new and that the market has continued to climb ever since it started its inversion, and there’s no sign that it’s ending. However, last week, we noticed that the 2-yr yield was 47.9 basis points more than 10-yr yield, which is the biggest differential so far this year. It may be pushing for 5% level and more as they predict that near-term interest rates will be higher for longer as the Fed keeps fighting inflation.

The week ahead offers fresh data that ought to provide more clues about the interplay between consumers’ attitudes and U.S. inflation. Tuesday brings the Conference Board’s consumer-confidence reading for May, and Friday’s releases will include an April reading of the PCE, Fed’s preferred inflation gauge. Also, investors should watch out for next week’s auctions of Treasury debt. the sales could “put pressure on the back end,” taking the yield higher and prices lower.

Again, we were on-point on how $SPY and $QQQ moved last week. $SPY traded in the ranged $530 to $535, then failed to hold $529 and traded to $525-$524 area. We traded the $QQQ per our plan from $450 to $455, then over $456 to $460. Closed the week with a doji candle on $SPY after 4 green weeks, is it a signal for trend reversal? If $SPY fails to reclaim $533 or gets rejected at $530, we may see it trades down to $525-$524 again, then below $524 to $520-$519 area. $QQQ is currently in $455 to $460 range. Over $461.50, that may take it to $466-$467 area. If it fails to hold $455, it should trade down to $450-$449.

As the earning season is coming to the tail end, we may see some more signals from consumer spending on these retail names releasing their earnings this week like $COST, $ULTA, $DELL, $BBY $DKS, $AEO, $DG, $KSS, $FL and on these tech names like $CRM, $MRVL, $ZS, $AI, $PATH. We may have a couple good trades from this list. Our focus for this short week is on our “Magnificent 7” and some of these earnings. As we’re witnessing, it’s not “sell in May and go away.” It’s been “buy in May and go PLAY” instead. Until then, enjoy the last week of May. Be loved and take good care of each other’s. Namaste!!!