'Be Wary Of Cashing In': Stock Market Update For The Week Ahead

The Past Week, In A Nutshell

What Happened: Stocks closed the week practically unchanged after mixed reactions to a slew of blow-out earnings results.

Remember This: “Although the stock market will certainly experience pullbacks, disappointments and corrections along the way, the horses have just begun this race and investors should be wary of cashing in a winning Superfecta ticket too early,” said Jim Paulsen, chief investment strategist at the Leuthold Group.

Pictured: Profile chart of the S&P 500 E-mini Futures

Technical: Broad-market equity indices held onto recent gains, evidenced by the absence of directional surprise.

Recapping last week’s action: On Monday, after the prior week’s action brought the S&P 500 back to its monthly VWAP and $3,190, an area tested multiple times, participants sold the market further to Friday’s most traded price, as is usual, before impulsing higher, through the resting liquidity at $3,230, on upbeat economic news and stimulus hopes.

On Tuesday, the S&P 500 attempted to eat into the poor structure left from the July 23 sell-off, prior to allocating to safety on underwhelming quarterly earnings in the European session. For the remainder of the American session, the S&P traded responsively and lower, with delta, into the close as U.S. fundamental data weakened. Intermediate-term buyer’s remained in control on Wednesday as the S&P walked it’s way higher, albeit on poor structure and participation, as the Federal Reserve reiterated a pledge to support the economy and positive earnings updates.

On Thursday, after a gap down on more dismal earnings data from Europe, the S&P took a shot at some resting liquidity in the $3,200 area, prior to putting in an excess low and trading higher, behind the Nasdaq, to and through a prior low-volume area. On better than expected economic and fundamental releases out of the United States, the S&P continued its trek higher Friday, squeezing into the close, ahead of value.

Despite blow-out earnings, equity indices are showing signs of exhaustion, evidenced by the uninspiring upside participation. Overall, the market appears to be digesting upside moves through time, sending mixed signals to directional traders. Moving forward, attention should be paid to upside follow-through by small-caps, energy, and financials, among other parts of the broader market.

Scroll to the bottom of this story to view non-profile charts.

Key Events: Earnings; ADP Employment, Challenger Layoffs; Weekly Unemployment Claims; ISM Indices; ISM New York Business Conditions; Construction Spending; Home Prices; Vehicle Sales And Prices.

Fundamental: S&P 500 companies have beaten earnings estimates at a higher pace.

• Blow-out earnings show tech dominates as 10% of jobs may never return.
• ECB extends dividend ban despite banks’ resistance to COVID-19 effects.
• Rates will remain near the zero bound for many years to come.
• As GDP tanked, personal income grew thanks to government support.
• U.S. specialty stores have been hit hard with downgrades.
• Fiat Chrysler Automobiles NV FCAU limits losses, sees better second half.
• Ford Motor Company F to defer quarterly payments on retooling loan.
• Outlook for U.S. value stocks looks uncertain in light of cloudy economic picture.
• Poll shows funds favoring bonds over stocks on surging coronavirus infections.
• U.S. consumer spending presses ahead; declining income poses challenges.
• Trump to sign an executive ban on TikTok amid pressure on Chinese owner to sell.
• China accounts for nearly one-quarter of Tesla Inc’s TSLA revenue.
• Microsoft Corporation MSFT in talks to buy TikTok’s U.S. business.
• Tech stocks may be growing at the expense of others, or the economy itself.
• Congressional Testimony: Lawmakers question big tech about competition, startups.
• Benchmark yield dips; convexity-hedging would accelerate a decline in yields.
• The public’s view of almost every industry improved since the beginning of the virus.
• Exxon Mobile Corporation XOM struggles to reverse failed bets.
• Renters owe $21.5B in back rent; Republicans and Democrats fight over relief.
• Moderna Inc MRNA, Pfizer Inc PFE start COVID-19 trials.
• Big tech must take relative market cap from other sectors to keep growing.
• Fed chief says coronavirus surge is slowing U.S. economic recovery.
• General Motors Company GM to pay off loan if recovery continues.
• Fed buying spree could move to long end of yield curve, analysts say.
• eBay Inc EBAY classifieds sale not a big hit to revenue.
• Intel Corporation INTC guidance and delays are credit negative.
• Goldman Sachs Group Inc GS DOJ investigation remains open.
• Hurricane Douglas heads toward Hawaii, threatening losses for insurers.
• Virus surge and the expiration of relief measures imperil economic recovery.
• August the best month for the dollar and volatility, worst for bonds.
• Second COVID-19 wave forces new travel curbs around the globe.
• Reported cases and fatalities fell in states hard hit by the coronavirus.
• Rural small businesses may not survive another coronavirus shutdown.
• The housing market defies expectations amid economic turmoil.
• Far more investors are opting to take physical delivery when gold contracts end.
• Good performance in one period does not predict outperformance in another.
• The U.S-China cold war would redirect energy flows, alter global supply chains.
• China is buying American but not enough to hit the trade deal targets.
• Managing the dynamic reduction in the Fed’s balance sheet over time.
• Plentiful evidence that the resurgence of COVID-19 has choked the recovery.
• Boeing Co BA slashed production of its biggest twin-engined jets.
• Sentiment: 20.2% Bullish, 31.3% Neutral, 48.5% Bearish as of 7/29/2020.

Product Snapshot

S&P 500 E-mini Futures (ES) | SPDR S&P 500 ETF Trust SPY

Nasdaq-100 E-mini Futures (NQ) | PowerShares QQQ Trust QQQ

Russell 2000 E-mini Futures (RTY) | iShares Russell 2000 Index IWM

Gold Futures (GC) | SPDR Gold Trust GLD

Crude Oil (CL) | United States Oil Fund LP USO | Invesco DB Oil Fund DBO | United States 12 Month Oil Fund USL

Treasury Bonds (ZB) | iShares 20+ Year Treasury Bond TLT

Cover photo by Yamil Duba from Pexels.