Weekly Stock Market Update & SPY Technical Analysis
The AI rally has a chance at a “reawakening” this week as Micron Technology releases its quarterly earnings results, giving insights to how much demand the memory industry saw over the past three months. Memory stocks have been the talk of the town over the past 12 months…Micron trades about 600% above its price a year ago, that’s a stark difference compared to Nvidia’s 12 month 26% performance.
Nvidia had already enjoyed an enormous AI driven rally, while Micron became one of the market’s newer beneficiaries of the infrastructure buildout. GPUs may get most of the attention, but they can’t operate at scale without memory. AI servers require enormous amounts of DRAM and High Bandwidth Memory, or HBM, to feed data to advanced processors quickly enough to keep them running efficiently. That makes memory a very important piece of the AI infrastructure story, which is why earnings data is so important to analyze this week. If Micron reports above expectations, it’ll show that demand is still accelerating and it can “revive” the rest of the AI buildout companies that have gone dormant over the past few months.
Economic Calendar this Week
This week markets end of Q3, making it an important week to watchlist flow…especially on Wednesday, when quarterly options expire. Quarter end rebalancing can give actionable signals to where capital is flowing and may head into the next quarter. With Q4 being historically strong, this rotation cycle is especially important to determine our swing / position trades over the coming weeks and months. We’ve highlighted some stocks which are already out as potential set-ups in our weekly watchlists.
With a new month also comes key economic figures…this week focuses on the U.S. labor market, GDP, and inflation rate. Every single report related to these points this week can be “market moving.” Why? Because all of these data points will move interest rate expectations and bonds…long term bond yields are already sitting at highs not seen since the early 2000s going into this week. Hotter inflation, stronger than expected economic growth, or a resilient labor market could strengthen the case for higher rates for longer and put additional pressure on stocks. On the other hand, sharply weaker economic data could revive rate cut expectations, but it could also create a different concern…that the economy is slowing faster than investors expected. It’s a tightrope to walk…we’ll update it as it develops in real time.
Overall Market Conditions
We have to address the market’s current health, which is reading at neutral sentiment of 53/100 per the Hyper Market Sentiment. This sentiment is made up of the following components: market momentum, market breadth, market volatility, risk appetite, and sector participation. Sector participation is currently the biggest negative outlier at just 17/100, while market breadth sits at 31/100. That shows that a relatively small group of strong stocks and sectors are helping hold up the major indexes, while a much larger portion of the market is struggling underneath the surface. Only 4 of 11 sectors are trading above their 50 day moving averages, while just 44% of the stocks we track are above theirs. At the same time, the S&P 500 is still trading near its 52 week high and continues to trade above its 50 day moving average, which is why market momentum remains relatively strong at 66/100. Volatility conditions are also calm, scoring 80/100, and risk appetite remains neutral at 56/100.
All this doesn't necessarily mean the market is headed lower, but it does make the rally more dependent on a narrow group of leaders. Ideally, we'd want to see breadth and sector participation begin catching up…otherwise, weakness in those market leaders could have an outsized effect on the major indexes.
One last thing to note is that the current market conditions are not especially unusual for the environment we’re in. September has historically been a more difficult month for equities, and this year investors are also navigating the uncertainty surrounding the upcoming midterm elections, ongoing war headlines, and oil trading above $100 per barrel.
Put all of that together and some weakness beneath the surface of the market shouldn’t come as a major surprise. The key question is whether this remains a normal period of consolidation and rotation, or whether weak breadth and sector participation eventually begin pulling the major indexes lower as well.