Investors could get a remedy in the coming weeks from the vicious selling cycle that has gripped the stock market since late March.
The stock bounced off Thursday’s washout lows and is set to exit the week with declining losses after Friday’s rally. On Friday, buyers hunted for bargaining between small caps, biotechnology names, arc innovation ETFs and other growth names that hit the hardest.
The S&P 500 jumped above the 4,000 level on Friday, after touching 3,858 on Thursday – close to the 3,800 to 3,850 area that chart analysts are looking for below. But with the market likely to bounce temporarily, market technicians say the zone will probably be tested again later.
“Does that mean it’s at year-lows? Probably not, but it could create an oversold bounce back in the S&P 500 to retest 4,100 or 4,200 levels,” said Scott Redler of T3Live.com, who follows the market’s short-term technology In the market, you get the week when you pull ৷ In the bear market, you get extra sales bounce
Radler said he hopes traders will try to sell the rally. On Friday, the Nasdaq rose 3.8% even though it was down 2.8% for the week, and the Dow was up 1.5% but down 2.1% for the week. The S&P 500 ended Friday at 4,023, up 2.4%, but declining the same amount for the week.
“It contains elements of an oversold bounce that can last for more than a week. I think this bounce will be driven by all overseld names that are 70% to 80% lower than their highs,” he said. “That doesn’t mean you can buy blindly. Not everything will be created equal in this bounce.”
Redler said the Federal Reserve’s failure to meet for a few weeks could add some support to stocks. Markets have been nervous that the Fed will raise interest rates too quickly and suffocate the economic recovery as it seeks to reduce hot inflation.
In the coming weeks, investors will continue to look for clues in both the economic report and comments from Fed officials on the way for the central bank to raise interest rates.
Fed Chairman Jerome Powell will address a Wall Street Journal conference on Tuesday afternoon. For now, the market expects half-point interest rates to rise at the June meeting and another in July, possibly with a third in September. The central bank raised its Fed target target by half a point this month after rising a quarter of a point in March.
Consumer health will be a major focus next week. The economic calendar, including a survey by the National Association of Home Builders, includes a look at April’s retail sales and housing sector; Both reports are set for release on Tuesday, housing will start on Wednesday and existing home sales will start on Thursday.
Walmart, Home Depot and Target are set to report earnings next week, and these large chain stores could provide good insights into the impact of inflation on consumer spending and attitudes.
Almost a bear market
Perhaps the most telling thing for investors next week will be how the stock market trades after trying to return on Friday.
The index fell 19.55% to 3,858.87 in the S&P 500 on Thursday, down 19.55% from its high on an intra-day basis – very close to the official 20% fall for a bear market.
The relentless race for bond yields also slowed after the 10-year yield peaked at 3.2% this past week. The 10-year Friday was up 2.93%.
Jim Paulsen, chief investment strategist at Leuthhold Group, said: “I think the most encouraging thing for me is that the rate route is closed. Throughout the year, short-term yields are pushing up 10-year yields.” He noted that inflation expectations in the bond market had also fallen, and that declining pressure from the rate market could help the stock rally. Yield bonds move the opposite price in the market.
Katie Stockton, founder of Fairlead Strategies, says slowing down is important for 10-year yield growth. For the larger economy, the 10-year run of about 1.5% at the beginning of the year has already affected housing, as home mortgages have affected it.
For stocks, the names of technology and growth have been most affected by high treasury yields This is because higher rates make money more expensive and cheaper money fuels stocks with higher valuations.
“I think the 10-year yield is going to be suspended here,” Stockton said, adding that his approach is based entirely on chart analysis. “Such a steep trend is not sustainable. … We believe there is going to be a consolidation of Treasury yields and dollars.” He said support for 10 years at 2.55% and upward resistance at 3.25%.
Paulsen noted that there has been a lot of speculation from high-flyer and large-cap technology. “Look at the Fang stock going from 14% to 9% of the market cap. There’s been a lot of technology bleeding,” he said.
Investors were also watching Apple this past week, after it broke support at $ 150. The stock has an external influence on the market, as it is the largest US company by market cap and part of the Dow, S&P 500 and Nasdaq.
Apple stock fell below Stockton’s $ 139 target on Thursday but recovered on Friday, closing at $ 147.11 per share.
Stockton said his chart analysis indicates that the market will see about two weeks of stability, either with a bounce or a side move. “It’s not a buy signal. I’m not advising people to buy.”
There could be an oversold bounce, “and we usually plan to use that oversold bounce to reduce exposure,” he said.
On the downside, the S&P 500 target was 3,815, and he said it was still going strong. “We have to assume this will be a re-examination,” Stockton said. “Re-testing is more likely to cause a breakdown because the momentum is still on the bad side.”
Calendar of the week ahead
Earnings: Warby Parker, Take-Two Interactive, Tencent Music, Rainier, Weber
8:30 am Empire State Manufacturing
8:55 am New York Fed President John Williams
4:00 pm TIC data
Earnings: Walmart, Home Depot, Vodafone, JD.com
8:00 am St. Louis Fed President James Bullard
8:30 am Retail
8:30 am Business listings
9:15 am Philadelphia Fed President Patrick Harker
9:15 am Industrial production
10:00 am Business listings
10:00 am NAHB Survey
2:00 pm At a conference sponsored by Fed Chairman Jerome Powell The Wall Street Journal
2:30 pm Loretta Mester, president of the Cleveland Fed
6:45 pm Chicago Fed President Charles Evans
Earnings: Target, Cisco Systems, Low, TJX, Barberry, Tencent Holdings, Analog Devices, Shoe Carnival, Bath & Body Works, Synopsis
8:30 am Housing starts
8:30 am Building permit
4:00 pm Philadelphia Fed Harker
Earnings: BJ’s Wholesale, Applied Materials, Deckers Outdoor, Ross Store, Palo Alto Networks, VF Corp, Eagle Materials, Kohls, Grab Holdings, Vhipshop
8:30 am Initial claim
8:30 am Philadelphia Fed production
10:00 am Existing home sale
10:00 am Lead indicator
4:00 pm Philadelphia Fed Harker
Earnings: Deere, Foot Locker, Buzz Allen Hamilton