by Ben Weiss, for the Call to Leap Team
Happy Friday everyone. It was a doozy of a week on the market, but we made it through. I mean for the GIF above to be both humorous and serious. If you're paying any attention to the news and the stock market's movements lately, it's so easy to get wrapped up in all the bad news and the hype that's put out there—Remember: bad news sells and good news is "boring".
Stock indices like the S&P 500 and Nasdaq along with the stock market as a whole naturally move up and down over time. They always have. These cycles are part of a healthy market and it's up to us as disciplined, long-term investors to patiently and calmly move past the hype and stay the course.
Lettuce take a deep breath in and out and Romaine calm. 🥗
Whether the market moves up, down, or sideways, we're here for each other in this wonderful CTL community. We got this, Wealth Builders!
Now, let's take a look at what happened this week and what's coming up...
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The market this week
For the third week in a row, we continued on the strong market pullback, correcting from the major indices' all-time highs in early April. Save for the banking and healthcare sectors, we saw bright red broadly across the US market this week. Ahead of major earnings next week, the Magnificent 7 companies all slid down significantly, with NVDA and TSLA glowing the brightest red in the negative. All Magnificent 7 members except for NVDA announce earnings in the next two weeks so we can certainly expect some higher trading volume and significant price movements (in either direction) coming soon. Let's fasten our seatbelts and stay tuned.
By the numbers, the S&P 500 (-3.54%), DOW 30 (-0.23%), Nasdaq (-6.11%), Russell 2000 (-3.15%) all registered major losses, except for the Dow Jones—which we'd expect in a broad market decline as this index holds safer, more conservative dividend-paying stocks that tend to weather market storms better. The Nasdaq fell over 2% on Friday alone, dragged down largely by heavyweight NVDA shedding more than 10% in share price.
To the charts
SPY
This week's price movement further confirms the most recent bearish breakout downward, shown by the red diagonal line, abandoning the long-running bullish trading channel in green dating back to late 2023. The stock price has moved further away (down) from the red trend line we originally drew, suggesting to me there may be some room for a bit of a bounce back up, if only for a short time.
In this chart, I've drawn a horizontal line a $491 that could act as support for a declining share price, with SPY having blown past my previous support theory around $503. I've also included the 50-day (yellow), 100-day (light blue/green) and 200-day (dark blue) exponential moving average (EMA) lines, which also can—but are never guaranteed to—act as support. As today's trading closely approached the light blue 100-day EMA (after strongly pass through the yellow 50-day EMA from last week's theory), I'll be very interested to see if that level holds firm or if it fails to support the price again. Below that, I see the next support around $478 which implies a further 3% drop in SPY.
Interestingly, SPY continues to push south of the Bollinger Band on the daily chart, suggesting maybe the index is correcting too quickly and there maybe a small bounce coming up (again, maybe but not guaranteed). Need a refresher on using Bollinger Bands?
QQQ
Over the past week, the Nasdaq has shown the most volatility and decline compared to other indices (-6.11%!), but we can expect this characteristic as the Nasdaq holds more volatile, growth-minded technology companies, many of whom do not pay a dividend to retain conservative investors during times of uncertainty.
QQQ is still well within the macro bullish channel I've drawn dating back to 2023, but you can see its sharp red decline lately. As of last week, QQQ hadn't seemed to establish as strong of a bearish trend compared to SPY, but that certainly changed this week and QQQ joined the bear party.
QQQ pierced and fell through the yellow 50-day EMA from last week's analysis, and fell further through the 100-day EMA too. Looking back over this year and further back to late 2021, I've spotted a few potential horizontal support lines that may come into play if QQQ continues to decline, the next apparent level being around $412 and then possibly $395 below that.
Adding Bollinger Bands to the QQQ daily chart shows a similar potential oversold situation similar to SPY above.
In the news
Less interest-ing...We largely took a break from inflation news and data this week. Fed Chairman Jerome Powell, however, was quoted saying that there has been "a lack of further progress" this year towards bringing inflation down to the Fed's 2% goal, which was not what stock market investors were hoping to hear. These comments combined with rougher start to earnings season added to the broad-base market selloff this week.
Earning our attention...We saw earnings season kick off last week with JPM and continued through this week with big names reporting including NFLX and AXP:
On Thursday, NFLX smashed expectations for both earnings per share (EPS, +16.7%) and revenue (+1.4%), reporting quarterly revenue of $9.3 billion—nearly 15% year-over-year (YoY) growth. Profits were reported around $2.3 billion for the quarter, along with a 16% jump in subscribers YoY. Interestingly, Netflix announced they will stop reporting on new subscriber starting next year, suggesting a surge in new memberships resulting from their crackdown on password sharing could slow down next year. The company has also signaled it wants to be judged by more dependable financial metrics like revenue, earnings and free cash flow.
On Friday, AXP announced impressive earnings, beating expectations for EPS (+12.71%) and matching expectations for revenue at $15.8 billion. Solid business momentum can be credited to increases in credit cards and other fee-based products as they expand their customer base globally, generationally (think: millenials and Gen Z), and into pockets of highly creditworthy customers (think: less likely to default on their debts to the lender).
Buckle up—over the next two weeks, we see earnings reports from each of Magnificent 7 members except NVDA. Let's be patient and see how things play out!
You got this, everyone! Stay disciplined, pay yourself first, and always invest in your greatest asset—yourself. As always, let us know if you have any questions. 🙌🏻
-Ben and Steve
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