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Market Outlook: Week of 4/18 – 4/22

Previous Week’s Update: https://25koptionschallenge.com/market-outlook-week-of-4-4-4-8-pullback/

Is the pullback turning into something more meaningful?

The markets went up from 3/15 to 4/1 and we got a really nice relief rally for 2 weeks. We were expecting a pullback around the 200 day SMA and we did get our pullback. But we have been selling off again since 4/1 for exactly 2 weeks now. Whether you are a Fibonacci believer or use support and resistance, everything is pointing to a bounce back. We have retraced 61.8% level if you consider Fibonacci retracements or the critical support at $340 if you simply use support/resistance. These are levels which technicians use as strong support levels where bounces usually occur after pullbacks and retracements.

Let us try to see if markets want to test January lows or are we due for a big bounce?

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Market Moving Events next week

Next week is chock-a-block with market moving events. We start with some housing data which will be interesting to see if you follow the Real Estate market. Although I am not a real estate investor, I closely follow Real Estate due to its far-reaching effects on the entire economy.

But the real fun begins after market close on Tuesday with NFLX reporting earnings. TSLA reports earnings after the bell on Wednesday. Jobless claims and Jerome Powell speaks on Thursday. 

“The NFLX effect”

It is hard to erase from memory what NFLX did to Nasdaq back in January. NFLX literally crashed 37% overnight back in January after missing subscriber growth numbers. Markets were already shaky at that point, and NFLX acted as the last straw on the Camel’s back. It is sad to observe that we are back at the same cross-roads. Markets have gone through a pretty sizeable pullback in the last 2 weeks and are testing a critical level of support. NFLX earnings alone have the potential of moving Nasdaq next week.

Jam packed week full of earnings.

I have highlighted all the stocks from our watchlist that are reporting earnings next week. But even outside of our watchlist, next week is crammed with earnings. A ton of financial institutions reporting throughout the week and Tech Sector kicking off their earnings with NFLX, IBM, TSLA reporting as well.

Macro Analysis (Covering SPY this week as all major indices have pulled back)

We saw some divergence between the Indices in the previous week and I had pointed out that weakness in one sector can easily spread into other sectors and we have seen ample examples of this happening in 2021. By the end of last week, the weakness which started in QQQ spread across the entire market and we ended up the week in red. 

VIX is still in chop city and is in no man’s land. Since we are in the middle of earnings season, earnings is what is going to decide where this market goes from here.

SPY,QQQ,DIA observations – (Jamming all these in together this week)

The weakness which started in QQQ has officially spread across all sectors. Markets have sold off for a full 2 weeks now and we are at a point where next week almost appears to be a binary event for the entire market. Good earnings can catapult us into a Bull Market. But markets are tired, shaky and vulnerable as we are testing critical support levels. Any ugly earnings surprises, can take us another leg down.

What to watch for in the coming week

  • Full Bull: It is hard to visualize any bullish scenarios right now. But SPY would need to take out $460 for us to go back into a bull market. (Also check the cheat sheet at the end for reference)
  • Deeper Pullback : We have already experienced a deep pullback as SPY has breached the $440 support level. The pullback will take on more meaning if we start falling further.   
  • Bearish: Bearish scenarios are coming back into play again. If we continue the slide, SPY can go another leg down to $428. QQQ which is looking the weakest is going to suffer the most and will take a lot of tech stocks down with it. (Don’t forget to keep a balance of sectors in your trades)

Bitcoin (Moving in sympathy with the rest of the market)

Bitcoin Bulls got excited when it started testing that $48K level earlier this month, but that enthusiasm evaporated pretty quickly as Bitcoin gave up all its gains and is literally moving in lock-step with the rest of the market now. With no clear direction across the board, it is hard to imagine any bullish scenarios in Bitcoin unless it makes another attempt to take out that $48K level. 

Key Takeways

  • Markets are at a critical level again. We should be prepared for another leg down if earnings bring any ugly surproses.
  • As long as VIX stays in Chop City, I will try to keep my portfolio balanced between Bearish and Bullish trades. Note that since markets have sold off in the last 2 weeks, I didn’t get many chances to add Bearish trades (You would add these normally on spikes and green days).
  • NFLX and TSLA earnings are going to be market moving events for Nasdaq and SPY. As if that is not enough, Powell speaking on Thursday, adds to the fun.  

CHEAT-SHEET

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