Weekly Trader's Outlook

If you read the last week's blog, you might recall that I had a "Higher Volatility, Choppy" forecast for this week, noting the rally in the stocks despite elevated uncertainty around the Iran war. At the time of this writing the S&P 500 (SPX) is on track to be up roughly 4% and all the majors, sans the Dow Jones Industrial Average, hit fresh record highs this week, so my forecast turned out to be wrong. It's been a remarkable week for risk assets, with WTI crude prices down 12% and the VIX down to 17. Although there is still lingering uncertainty around Iran, oil prices and the potential economic impact, it's as if markets have decided that the war is over and the oil price shock will be short-lived. Certainly, the headlines around Iran have been encouraging, with Trump and Iran's foreign minister both stating that the Strait of Hormuz is now open, though Trump declared that the U.S. blockade of Iran's port would remain in place.

Aside from developments concerning Iran, the economic data flow was light, but we did get the March Producer Price Index (PPI), which came in well below estimates (more on this in the "Economic Data, Rates & the Fed" section below). Regarding beneficiaries from this week's market rally, tech exhibited relative strength once again, with money flow targeting both the artificial intelligence (AI) infrastructure plays and software. The PHLX Semiconductor Index (SOX) is trading at fresh all-time highs today and the iShares Expanded Tech-Software Select Exchange-Traded Fund (ETF) (IGV) is up ~15% this week alone. Q1 earnings season unofficially kicked off this week with earnings from the big banks, and the results and commentary were encouraging. We've only had 46/500 S&P 500 companies that have reported so far, but so far 69% have beat on the top line while 80% have beaten on the bottom line. Q1 revenue growth is tracking at 13.21% and EPS growth is up an impressive 32.12%, but its early so reserve drawing conclusions at this point.

At the time of this writing (2:45 p.m. EDT) stocks are higher across the board, though off the lows of the session (DJI + 905, SPX + 84, $COMP + 346, RUT + 56). No doubt, the ferocious market rally off the March 30th lows has been impressive, and the news flow around Iran looks encouraging, but I'm a little concerned that we may have moved "too far too fast" or assumed too much about how easily traffic will flow through the Strait of Hormuz. Not only are the technicals flashing an overbought reading (more on this in the "Technical Take" section below), but the sharp rally may also present investors with a lean towards "sell on the news" when companies report earnings in the coming weeks. Of course, just because we are near-term overbought doesn't mean we can't march higher into a more overbought state next week, but history suggests that at least some caution/prudence is warranted, especially since the Nasdaq has achieved its longest winning streak since 2009. Having said that, I'll provide a "Slight to Moderately Bearish" forecast for next week, as I expect some mean reversion to manifest at some point next week. A modest "profit-taking pullback" could occur due to detrimental Iran headlines, or there could be a post-earnings sell-off reaction to some key earnings reports—recent winners such as ServiceNow, Tesla, Lam Research, and Vertiv report on Wednesday after the bell, for example. Of course, it can be risky to go against the bullish trend, and there's no guarantee here, I'm just assessing the landscape and attempting to provide my best guess for next week based on indicators and price action.

• Monday (April 20): no reports
• Tuesday (April 21): Business Inventories, Pending Home Sales, Retail Sales
• Wednesday (April 22): EIA Crude Oil Inventories, MBA Mortgage Applications Index
• Thursday (April 23): Continuing Claims, EIA Natural Gas Inventories, Initial Claims, S&P Global U.S. Manufacturing PMI, S&P Global U.S. Services PMI
• Friday (April 24): University of Michigan Consumer Sentiment - Final

• Monday (April 20): AGNC Investment Corp. (AGNC), Alaska Air Group Inc. (ALK), Bank of Hawaii Corp. (BOH), Cleveland-Cliffs Inc. (CLF), Dynex Capital Inc. (DX), Steel Dynamics Inc. (STLD), Zions Bancorporation NA (ZION)
• Tuesday (April 21): Capital One Financial Corp. (COF), Chubb Ltd. (CB), Danaher Corp. (DHR), D.R. Horton Inc. (DHI), EQT Corp. (EQT), Halliburton Co. (HAL), Interactive Brokers Group Inc. (IBKR), Intuitive Surgical Inc. (ISRG), 3M Co. (MMM), MSCI Inc. (MSCI), Northrup Grumman Corp. (NOC), RTX Corp. (RTX)
• Wednesday (April 22): AT&T Inc. (T), Boeing Co. (BA), Boston Scientific Corp. (BSX), CME Group Inc. (CME), CSX Corp. (CSX), GE Vernova Inc. (GEV), International Business Machines Corp. (IBM), Lam Research Corp. (LRCX), Phillip Morris International Inc. (PM), ServiceNow Inc. (NOW), Tesla Inc. (TSLA), Vertiv Holdings Co. (VRT)
• Thursday (April 23): American Express Co. (AXP), Blackstone Inc. (BX), Digital Realty Trust Inc. (DLR), Freeport-McMoRan Inc. (FCX), Gilead Sciences Inc. (GILD), Honeywell International Inc. (HON), Intel Corp. (INTC), Lockheed Martin Corp. (LMT), Newmont Corp. (NEM), Nextera Energy Inc. (NEE), SAP SE (SAP), Union Pacific Corp. (UNP)
• Friday (April 24): Charter Communications Inc. (CHTR), HCA Healthcare Inc. (HCA), Norfolk Southern Corp. (NSC), Procter & Gamble Co. (PG), SLB NV (SLB)

There was a moderate dose of economic data for markets to digest this week, highlighted by the monthly wholesale inflation report. After a string of hotter-than-expected monthly reads, the March PPI came in well below estimates, though the annual headline jump was the highest in three years. Elsewhere, weekly jobless claims remain subdued. Here's a breakdown of the reports:

• Producer Price Index (PPI): The headline PPI rose 0.5% in March, well below the 1.1% Dow Jones consensus estimate. On an annual basis, headline PPI acerated 4.0%, which represents the largest gain since February 2023. Core PPI rose 0.1% in March, well below the 0.5% expected. This puts the annual core PPI gain at 3.8%.
• NFIB Small Business Optimism Index: Dropped 3.0 points in March to an 11-month low of 95.8, which was below the 98.5 Briefing estimate. Respondents cited rising uncertainty, surging energy costs and pessimistic profit trends.
• Existing Home Sales: 3.98M vs. 3.99M est.
• Empire State Manufacturing: 11.0 vs. 3.30 Briefing estimate.
• Philadelphia Fed Index: 26.7 vs. 15.0 Briefing estimate.
• Industrial Production: -0.5% vs. 0.2% Briefing estimate.
• Capacity Utilization: 75.7% vs. 76.5% Briefing estimate.
• EIA Crude Oil Inventories: -0.913M barrels.
• EIA Natural Gas Inventories: +59 bcf.
• Initial Jobless Claims: Initial applications for U.S. jobless benefits decreased 11K from last week to 207K, which was below the 212K economists had expected. Continuing Claims increased 31K from the prior week to a seasonally adjusted 1.818M.
• The Atlanta Fed's GDPNow "nowcast" for Q1 GDP is unchanged at 1.3% versus last Friday.

U.S. Treasury yields followed oil prices lower this week and the yield curve experienced some steepening due to modest easing in the two-year. Compared to last Friday, two-year Treasury yields are down ~10 basis points (3.694% vs. 3.791%), 10-year yields declined ~8 basis points (4.234% vs. 4.317%), while 30-year yields eased ~4 basis points (4.877% vs. 4.914%).

Market expectations around the Federal Reserve's monetary policy moved in favor of a cut this week, likely influenced by falling oil prices and future inflation expectations. Per Bloomberg, the probability of a rate cut at the July Federal Open Market Committee (FOMC) meeting is currently 19.5% (from 4%), September is up to 36.5% (from 8%), October rose to 48.5% (from 10%) and December now stands at 66% (from 26%).

The S&P 500 index (SPX) is on track for a 4.3% weekly gain, which would bring the rally off the March 30th lows to roughly 12.50%. The "V" rebound has been faster than last April's "Liberation Day" recovery, and the index has done so despite uncertainty around whether the Strait of Hormuz is open or not. The rally in the SPX has brough the Relative Strength Index (RSI) from under 30 (oversold) to 73 in just 13 trading days. Therefore, new all-time highs are technically bullish from an intermediate and longer-term perspective, but near-term we are likely due for some kind of consolidation/mean reversion.

Technical translation: Intermediate and longer-term bullish, near-term cautious

The recent rebound in stocks has been led by the technology sector, and this is reflected in the ~16% rally in Nasdaq 100 index (NDX) off the March 30th lows. Like the SPX, the fresh all-time highs in the NDX is intermediate and longer-term bullish, but the RSI is currently at an overbought reading of 74, so some near-term caution is warranted in my view. I'll remind readers that the RSI is not a timing tool, and the index can always become more overbought before any mean reversion/consolidation occurs, but the indicator suggests that it could occur soon.

Technical translation: Intermediate and longer-term bullish, near-term cautious

The Bitwise 10 Large Crypto Index is up 10% week-over-week, with bitcoin up 5% and ether up 7% at the time of writing this on Friday. Bitcoin has staged a rally to $77,000, where it ultimately met resistance at the 100-day simple moving average (SMA). Given the recent strength, it's important to put key levels into perspective. While a retest of the 50-day SMA wouldn't be surprising, if bitcoin is able to break above the 100-day SMA, there are several key levels of resistance that may serve as firmer resistance.

The average cost basis across all the bitcoin spot ETPs is currently around $83,000. New crypto investors who gained exposure through ETPs may be inclined to sell at that level to recoup losses. A similar metric, the active investor cost basis, which measures the average cost basis across bitcoin acquired in secondary markets, is around $78,000. This metric excludes bitcoin awarded to miners and is a broader measure of average cost basis than just ETPs. Both measures suggest that the average bitcoin investor is currently sitting at a loss. These levels could serve as much stronger areas of resistance than moving averages. Finally, the 200-day SMA at almost $87,000 is the long-term price trend. Until there is a fundamental catalyst to ignite momentum into the crypto market, these various levels could keep prices relatively rangebound in the near term.

The Bloomberg chart below shows the current percentage of members within the S&P 500 (SPX), Nasdaq Composite (CCMP), and Russell 2000 (RTY) that are trading above their respective 200-day Simple Moving Averages (SMA). What's interesting is that the SPX notched fresh all-time highs this week but market breadth actually moved lower and remains well below the January highs. This suggests mega-cap tech has been a main driver of this week's rally. Compared to last Friday, the SPX (white line) breadth is down slightly to 56.71% from 57.23%, the CCMP (blue line) moved up to 44.04% vs. 40.54%, while the RUT (red line) improved to 59.58% from 58.03% (all week-over-week).

Market breadth attempts to capture individual stock participation within an overall index, which can help convey underlying strength or weakness of a move or trend. Typically, broader participation suggests healthy investor sentiment and supportive technicals. There are many data points to help convey market breadth, such as advancing vs. declining issues, percentage of stocks within an index that are above or below a longer-term moving average, or new highs vs. new lows.

This Week's Notable 52-week Highs (281 today): Aehr Test Systems Corp. (AEHR - $0.49 to $80.36), Bloom Energy Corp. (BE - $7.08 to $202.98), Citigroup Inc. (C + $2.62 to $131.96), Intel Corp. (INTC + $1.67 to $70.17), Marvell Technology Inc.  (MRVL + $4.76 to $138.13), Ubiquiti Networks Inc. (UI + $25.61 to $1,064.74)

This Week's Notable 52-week Lows (21 today): Check Point Software Inc. (CHKP - $0.29 to $137.32), Conagra Brands Inc. (CAG + $0.21 to $14.91), GFL Environmental Inc. (GFL - $0.78 to $38.20), Lucid Group Inc. (LCID - $0.05 to $7.65), Pilgrim's Pride Inc. (PPC - $0.02 to $33.63), The Campbell's Company (CPB + $0.39 to $21.33)