Market Update: Bulls Still Pushing V-Shape Recovery

Bulls Still Pushing V-Shape Recovery

8:00am (EST)

Commentary

The market rebounded on Friday to keep last week’s mini trading range in play following comments from Fed Chairman Powell on interest rates. He said “the time has come” for the central bank to begin lowering interest rates and for policy to adjust.

The Nasdaq closed at 17,877 (+1.5%) with the high at 17,941. Late July and lower resistance at 17,850-18,000 was cleared and held. A close above the latter would imply upside to 18,150-18,300. Support is at 17,750-17,600 and the 50-day moving average.

The S&P 500 reached a high of 5,641 while settling at 5,634 (+1.2%). Key resistance at 5,650 was challenged and held. Continued closes above this level and July’s all-time high at 5,669 would indicate a breakout to 5,700-5,750. Support is at 5,600-5,550 and the 50-day moving average.

The Dow ended at 41,175 (+1.1%) after trading up to 41,207. Key resistance at 41,000 was cleared and held. Continued closes above this level would signal strength towards 41,250-41,500 with the July 18th all-time top at 41,376. Support remains at 40,750-40,500.

Volatility Index

The Volatility Index (VIX) tagged a high of 17.17 while closing back above its 50-day moving average. Prior and lower resistance is at 17-17.50 was tripped but held. Support is at 15.50-15.

Monday’s earnings announcements:

Before the open: Alarum Technologies (ALAR), Daqo New Energy (DQ), Pinduoduo (PDD)

After the close: American Woodmark (AMWD), Senesco Technologies (SNT), Tuya (TUYA)

Market Thoughts

We talked about a possible holding pattern developing coming into last week as Wall Street awaited earnings from Nvidia (NVDA) that are due out this week after Wednesday’s close. Salesforce (CRM) will also being announcing so Thursday’s open will be heavily influenced by both company’s results.

In our Thursday morning update, we talked about the major indexes holding key support levels while inching higher. Key support numbers are at Dow 40,500; S&P 5,550; and Nasdaq 17,500 with a break of these levels getting backup support levels in play. These are at Dow 40,000; S&P 5,500, and Nasdaq 17,350.

It will be exactly three weeks from the August 5th bottom coming into Monday’s open and we talked about a possible v-shape recovery if buyers stepped in to “buy the dip”. We pointed out there had only been one previous pullback, in April, that gave investors a chance to get in a rally that has lasted throughout 2024.

The S&P fell exactly 10% from its July 16th peak at 5,669 to the August 5th low at 5,119. The Nasdaq tanked 16% from its July 11th all-time peak of 18,671 to 15,708 while the Russell tumbled 13% from 2,299 on July 31st to 1,993 by August 5th. The Dow was down less than 10% over this time frame.

We mentioned a week afterwards the bulls had several layers of resistance to overcome, three to be exact, before we would turn bullish again. We have taken advantage of the ongoing rebound for two weeks but we still have to be careful of another top forming. These means tighter stops and early exits until new all-time highs are confirmed.

The only technical damage from last week occurred on the Nasdaq as it fell out of its uptrend channel from the August 5th bottom. This isn’t too bearish as a close above 18,000-18,200 would correct the situation.

Obviously, another stellar earnings report from Nvidia with a continued rosy outlook would be a rising tide that lifts the major indexes to fresh all-time highs, especially the Nasdaq. However, a disappointing update could thwart momentum and form another possible market top.

Wall Street is looking for the company to earn 64.5 cents a share on revenue of $28.723 billion. For the record, Nvidia has topped estimates the past six quarters.

The comments from Powell comes just over three weeks out from the Fed’s mid-September meeting, which should see the central bank announce its first interest rate cut since 2020.

If the bulls play their hand right, we could see a breakout rally to fresh all time highs with a bullish thesis into next month. From there, it could be a sell-the-news event on the rate cut into month end that would then set us up for October and another round of quarterly earnings.

As far as the VIX, we said the bulls needed to hold 17.50 throughout last week which they did for the most part. Thursday’s peak reached 18.06 with the close at 17.55. We often talk about “stretch” on the charts and this is a good example along with the Nasdaq’s action last week.

This is why we always say to wait for continued closes below or above certain levels to confirm a breach of key support or resistance.

We expect the current trading range to continue into Thursday’s open with Wednesday’s after-hours action giving us early clues on how the session and the rest of the week’s action unfolds.