The Risk of a Failed Bounce Is High, But Investors Feel Optimistic
The major indexes moved up nicely on Thursday and Friday following a slightly dovish Jerome Powell, weaker-than-expected job numbers for April, and slightly better-than-expected earnings from Apple (AAPL) and Amazon (AMZN) .
The S&P 500 is trading over its 50-day simple moving average early on Monday morning, and the big issue now is whether this will turn into a failed bounce or if the market continue to trend higher and retest the highs hit in late March.
There is not much economic news due this week, but there should be a parade of Fed speakers stirring up speculation about when the Fed might cut rates. Expectations of a rate cut were accelerated last week after Powell and the jobs news, which was the main catalyst for the market bounce.
The primary trading news this week will be a slew of earnings reports, mostly from smaller names. Most of the big guns have already reported, but there still is Nvidia undefined and a few others on the horizon.
Small-caps reports tend to create much more volatility than the bigger names, and there are far more misses and disappointments. However, the market will typically discover a few new leaders and ideas that were previously under the radar.
The market action last week stirred up some optimism, and there is hope that the trend will continue, but there are still some substantial obstacles. What we need to watch for are lower lows and weak closes. If the market closes weak after some early strength, it would be an indication that institutional sellers aren’t embracing the idea of a recovery.
I will primarily focus on stock picking this week and will be very busy navigating small-cap earnings reports. There has been better technical action in small-caps compared to the rest of the market, and that is encouraging.
At the time of publication, James "Rev Shark" DePorre was long AMZN.