Equity Markets Slump, What’s Next This Week?
Well the bull party came to a sudden end.
Equities pulled back the most in almost two years.
It wasn’t a surprise for any one of our TRADEPRO subscribers. We’ve spent the last few weekly webinars (Sundays at 8PM EST) showing our subscribers that institutional money was leaving the market, while retail crowds were getting extremely long.
Selling started early on Monday and didn’t let off all week, with the largest move lower happened on Friday.
Bearish markets are ones that open bullish and weak volume but close on lows on heavy volume.
We’ve seen this occur this week, and we feel there is a lot more selling to come in the next few weeks.
Here is a look on an intraday chart of all of last week:
Weekly Stock Market & Sector Overview
Top Chart – Stock Market Sectors (every one was down)
- Utilities were down 1.42%
- Financials down 2.99%
- Technology down 3.37%
- Energy down 5.81%
- Retail down 6.61%
Bottom Chart – Markets Overview
- US Dollar up 0.10%
- Gold down 1.13%
- Oil down 1.77%
- SP500 down 4.07%
- Silver down 5.00%
Volatility Was Moving Higher Prior To Breakout and Soars After
One thing we covered in our weekly subscriber webinar last Sunday was the unusual increase of volatility.
We noted that as equities rallied to fresh euphoric highs, the volatility of SP500 stocks (VIX) was also soaring.
This increase in the front end of the futures curve was very concerning and telling of a coming sell off, which materialized last week.
Here is a look at that increase in VIX (blue line below) in comparison to the SP500 market:
This divergence started appearing on the chart since the beginning of 2018.
We think the selling is just getting started, and equities will drop down another 5% to 10% in the next few weeks.
Healthcare Sector Gets Destroyed, Here’s Why
Healthcare stocks got slammed early on in the week, as Amazon, Berkshire and JPMorgan announced plans to team up to create an affordable employee benefits company.
Also, Metlife stock (MET) dropped hard (over 12%) last week after it disclosed it “discovered” a weakness in internal financial reporting controls.
We think rallies will present great selling opportunities.
Looking further at MET stock:
- momentum is heavily bearish
- price has broken below the 200 day moving average
- volume is increasing with down moves
Amazon Blows Out Earnings, Apple Struggles and PayPal Sinks
Amazon reported a whopping $3.75 earnings per share (EPS), blowing out the expectation of $1.85. Revenue was $60.5B vs $60B expected.
The company’s web services sector grew an astonishing 45% higher vs the previous year, as net operating income reached $1.35 billion.
Alexa sales also shot up, and Bezos personally said they will double down on this strategy to capitalize.
Amazon stock held highs above $1,400 a share as broad markets got slammed.
Apple reported Q1 earnings per share of $3.89 vs $3.82 expected, on revenue of $88B vs $86.3 expected.
The company also mentioned they will outline plans to repatriate their massive amount of overseas cash into the United States in the coming months.
Despite an overall beat on earnings, investors had greater expectations.
Also, the iPhone X issues continue to weigh down the stock price. The SEC investigation into the slowdown of hardware devices is also spooking investors as it could lead to large fines.
Apple stock tanked after hours and continued lower on Friday.
PayPal shares (PYPL) dipped after Ebay announced it will be replacing it’s primary payments processing partner.
Ebay users will still be able to use PayPal until 2023.
Paypal stock tanked, and we think rallies are great selling opportunities as this news could be a nail in the coffin for the payment processor.
Weekly Market Sentiment
This week we are starting with the following trading sentiment, and will switch if proven wrong.
We do not focus on being right, we focus on getting paid and being profitable.
You can have an idea, but when you are wrong you need to abandon it quickly and jump on the other side in order to make money in these markets.
US Dollar: Bullish
For full sentiment readings and analysis on market timing and what to trade, you can check out our subscriptions here – all of them include our amazing weekly live analysis webinar (and recordings also).
Weekly Economic Calendar
This week will be more quiet in the US than the previous.
Monday we will see an update on ISM non-manufacturing data, watch the SP500 and the US dollar for trading opportunities in the morning.
Tuesday we have some trade numbers out of Canada, and traders can benefit by watching the Canadian dollar futures (CA6) or the USD/CAD currency pair.
Wednesday is all about the latest crude oil inventories report. Watch the oil futures for opportunities.
Thursday will be an early morning, with the UK releasing their latest monetary policy summary and inflation report. In addition, the key interest rates are expected to remain the same. You can trade the Pound futures or the GBP/USD currency pair to take advantage of the volatility.
Friday we end the week with the Canadian employment report, with the Canadian dollar futures and USD/CAD currency pair on center stage once again.
That’s it for this week.
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Good luck and good trading.
The information contained in this post is solely for educational purposes, and does not constitute investment advice. The risk of trading in securities markets can be substantial. You should carefully consider if engaging in such activity is suitable to your own financial situation. TRADEPRO Academy is not responsible for any liabilities arising as a result of your market involvement or individual trade activities.