Weekly Trader's Outlook

If you read last week's blog, you might recall that my outlook for this week was "Moderately Bullish," citing bullish momentum and bullish seasonality. At the time of this writing (Friday morning), the S&P 500 is up roughly 2.0% on the week, which was primarily driven by cooler-than-anticipated inflation data from Tuesday's Consumer Price Index (CPI) report. We also received some cautious commentary regarding the consumer from Walmart, some cautious guidance regarding enterprise spending from Cisco and Palo Alto Networks and evidence of some slack in the labor market from the Initial Jobless Claims report (231K, highest since August 18th). These data points suggest some softening in the economy, which the bulls are interpreting as further evidence that a "soft landing" will be achieved by the Federal Reserve.

As Nvida goes, so goes the market? Perhaps, but it probably isn't fair to give an earnings report from any corporation that much importance. Of course, Nvidia is important to the markets because it represents the leader of the AI secular growth story, which is one of the bulls' pillars. As I mentioned in the SPX technical section below, the holiday-shortened Thanksgiving week tends to be lighter volume and potentially more volatile. The bulls appear to be in control, but we also might be a little near-term stretched to the upside. Therefore, my outlook for next week is "Breakout," which in my definition translates into +1.0-1.5% higher or lower on the SPX by next Friday's close.

Economic:

• Tuesday (11/21): Existing Home Sales 
• Wednesday (11/22): Initial Jobless Claims, Durable Goods Orders, University of Consumer Sentiment (Final) 

Earnings:

• Tuesday (11/14): Lowe's Companies (LOW), Medtronic (MDT), Best Buy (BBY), DICK'S Sporting Goods (DKS), Nvidia Corp. (NVDA), Autodesk Inc. (ADSK)
• Wednesday (11/15): Deer & Co. (DE)  

Inflation data was the primary driver for stocks this week. Every CPI metric (headline, core, month-over-month and year-over-year) came in 0.1% below estimates with the core CPI increasing at the smallest level (4.0%) since September of 2021. Yields on the 10-year correspondingly fell and closed below the 4.50% level on Tuesday for the first time since September. The bullish response is a reminder that the primary market driver is still yields, the trajectory of inflation and the Fed's positioning within this cycle. Wednesday's report on prices at the wholesale level confirmed the dis-inflationary theme as October's Producer Price Index registered the largest monthly decline (-0.5%) since April of 2020.

According to Bloomberg, the probability of a Fed rate hike at either the December or January Federal Open Market Committee (FOMC) meeting currently stands at 0%, which is down from 28.3% last Friday. Looking further out in time, Bloomberg probabilities suggest a rate cut at either the May or June FOMC meeting in 2024 (using 65% probability as the threshold).

10-year Treasury yields have traded in a range of 4.404-4.696% this week and are hovering around the lower end of the spectrum (4.444%) at the time of this writing. This month, the 10-year yield dropped below its upward-trending 50-day Simple Moving Average (SMA), which can signal a change in trend, meaning the uptrend may be shifting to a sideways trend or potentially a downward trend.

S&P 500 (SPX + 1 to 4,509)

First, let's acknowledge that the SPX is up ~7.5% so far this month, which may suggest that at some point we may be due for a mean-reverting pullback. Having said that, the momentum still appears to be bullish, as evidenced by the positive closes over the past three days, and seasonality favors the bulls. We will only have three and a half trading days next week (markets will be closed on Thursday for Thanksgiving and Friday is a half day), so expect volume to be relatively light which may translate into higher volatility (either higher or lower). Over the past 10 years, the SPX has closed higher on Thanksgiving week 80% of the time with a 0.92% average gain. However, in the two years in which the SPX closed lower, the losses were significant: -3.80% in 2018 & -2.19% in 2021. Given this history, the technical set-up (i.e. momentum is bullish but perhaps a bit stretched), along with a key earnings report from Nvidia on Tuesday, my outlook for next week is "breakout." I would define breakout for this set-up as either 1.0-1.5% higher or lower on the SPX by next Friday's close. Near-term technical translation: breakout  

Russell-2000 (RUT + 23 to 1,797)

I feel that we potentially witnessed a significant bullish development in the RUT this week. First, the index gapped up above its 50-day SMA and held above the indicator. Next, and perhaps more importantly, it appears that we broke the neckline on a (bullish) head-and-shoulders bottom formation on the chart. Additionally, the head of this formation coincides with 1,650, a key support level for this index over the past 18 months. Yields will likely continue to be an important influence on this rate-sensitive index, but this week's development is technically bullish. Near-term technical translation: bullish  

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.

Below is a Bloomberg chart showing the percentage of members in the S&P 500 (white line – 67.66%), Nasdaq Composite (blue line – 46.35%) and Russell 2000 (red line - 57.49%) that are trading above the 50-day SMA. As you can see on the right side of the chart, we saw quite a large breadth thrust this week following Tuesday's CPI report. Relatively speaking, this is an encouraging development for the bulls, but we remain below the highs seen back in February and July earlier this year.

This Week's Notable 52-week Highs (98 today): Abercrombie & Fitch Company (ANF + $4.63 to $73.61), Cameco Corp. (CCJ + $0.61 to $44.55), General Electric Company (GE + $0.19 to $119.13), Hilton Inc. (HLT + $0.73 to $167.90), International Business Machines Inc. (IBM + $0.02 to $153.08), Ross Stores Inc. (ROST + $10.63 to $130.78), Wingstop Inc. (WING + $2.95 to $230.67)

This Week's Notable 52-week Lows (78 today): Canadian Solar Inc. (CSIQ - $0.29 to $20.22), ChargePoint Holdings Inc. (CHPT - $1.14 to $1.98), Chevron Corp. (CVX + $1.31 to $143.08), Green Plains Inc. (GPRE - $0.09 to $25.01), Kroger Company (KR - $0.42 to $42.24), Pfizer Inc. (PFE + $0.07 to $29.84), Zim Integrated Shipping Inc. (ZIM - $0.19 to $7.08)