Options Oracle Weekly Market Report📈
Summer Selloff and Rate Cut Rumors Rock Markets
August 2, 2024
Week in Review 📆
Monday 📉
A summer selloff hit its stride this week, led by a -9.7% drop in semiconductors and a -6.7% tumble in the small-cap Russell 2000.
Wednesday 📈
A roller coaster week saw investors cheer the Federal Reserve's hint that a rate cut was on the table for September after Wednesday's FOMC announcement, sending the NASDAQ soaring +2.64%.
Thursday 📉
Weaker-than-expected economic data on Thursday triggered concerns that the Fed was waiting too long to cut rates, erasing those gains with the Philadelphia Semiconductor Index sinking -7.14% on the day.
Friday 📉📊
A big miss in the July Bureau of Labor jobs report on Friday slammed the major averages and yields plunged to their lowest level in two years. Only 114k payrolls were added in July, the lowest since 2020, and the Unemployment Rate jumped to 4.3%, its highest level since October 2021. The rate on the 10-year Treasury fell to 3.808%, while the two-year T-Bill hit 3.892%.
Sector Performance 📊📉
Rate-sensitive sectors outperformed with Utilities (XLU), REITs (XLRE), and Consumer Staples (XLP) higher, while Communication Services (XLC) was also higher on a rally in shares of Meta Platforms (META) after a strong earnings report. Technology (XLK) was the weakest sector, down -5.33%, followed by selling in Energy (XLE), Consumer Discretionary (XLY), Financial (XLF), and Industrials (XLI). The Energy sector was weighed down by a drop in crude oil prices on concerns of slowing growth despite increased tensions in the Middle East.
Great Rotation Trade 🔄
The great rotation trade had to question whether a soft landing was still possible, and small caps, cyclical, and value stocks joined the selloff as the different indexes closed the period sharply lower. The coming week puts Q2 earnings in the spotlight with little economic data on the board, and talk will center around if the Fed has waited too long to move and how big a rate cut the Federal Reserve needs to implement in September. As of Friday, the CME Group FedWatch now projects a 71% probability of a .50-point cut, up from just 5.5% a month ago.
Market Performance 📉📊
DJIA: Dropped 852.08 points (-2.1%) and settled at 39,737.26.
S&P 500: Lost 112.54 points (-2.1%) and closed at 5,346.56.
NASDAQ: Tumbled 581.72 points (-3.4%) finishing at 16,776.16.
Russell 2000: Snapped a three-week win streak, giving up 150.76 points (-6.7%) and settled at 2,109.31.
Market Outlook 🔮📉
The technical condition of the market deteriorated this week, with different indexes trading down and struggling to hold key support areas as the period ended. Technical indicators slipped into negative ground with MACD bearish across the board, and Momentum, as measured by the 14-day RSI, descending into negative ground.
Key Support Levels 📉🔍
Friday's selloff saw the different indexes test key MA support levels. The NASDAQ had fallen into correction territory (-11.1%) from the July high to Friday's intraday low, and the Russell 2000 shed -9.6% over the same time frame. The DJIA and Russell 2000, beneficiaries of the rotation out of tech stocks, bounced off their respective 50-day MA, while the S&P 500 found support at its 100-day MA. The NASDAQ finished below support at its 100-day MA on Friday. The weakest index was the Philadelphia Semiconductor Index (SOX), which suffered a -23.4% decline from its recent high to Friday's low but found buyers after hitting its 200-day MA for the first time since October 2023.
Sector Snapshots 📊
Interest-sensitive and defensive sectors: Utilities (XLU), REITs (XLRE), Consumer Staples (XLP), and Healthcare (XLV) hit new highs intraday on Friday.
Cyclical sectors: Financial (XLF) and Materials (XLB) found support at their 50-day MA.
Technology and Consumer Discretionary: Bounced off their respective 200-day MA.
Industrial: Looked to find support at its 50 and 100-day MA.
Underlying Breadth 📉
Underlying breadth was mostly negative. The NYSE and NASDAQ Advance/Decline lines, leading indicators of market direction, were weak. However, the NYSE A/D line only fell back to the prior week's level. New highs outdid the new lows on the NYSE each session and on three of the five days on the NASDAQ, indicating that the correction has been somewhat orderly.
Investor Sentiment 📊💡
Investor sentiment remains overly bullish as seen on Wednesday's rush to buy equities after Fed Chair Powell's comments. While this week's action is likely to jolt investors back to the center, the American Association of Individual Investors (AAII) shows retail bulls still outnumber the bears 1.8:1, while the Bullish-Bearish Investment Advisors Ratio at 3.8:1 still favors the bulls almost 4:1.
Industry Group Rankings 📊📈
Strongest Groups: Savings & Loans, Media-Cable Broadcasting, Containers & Packaging, and Home Construction.
Weakest Groups: Semiconductors & Related, Aluminum, Restaurants, and Metals Non-Ferrous.
*Disclaimer: The information in The Options Oracle is my opinion, not financial advice.
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