TAKEAWAYS
- The S&P 500 and Dow Jones Industrial Average closed at record highs.
- Gold prices are on fire, closing at a record high.
- Bitcoin breaks out of a consolidation pattern.
Despite a light economic data week, the stock market continued its rally, with the S&P 500 ($SPX) and the Dow Jones Industrial Average ($INDU) closing at record highs. How many times have we heard that? This is the sixth positive week for the three indexes.
Strong earnings from big banks, Taiwan Semiconductor Mfg. (TSM), United Airlines Holdings (UAL), and Netflix, Inc. (NFLX) injected optimistic energy into the stock market.
Tech Stocks Hold Steady
The tech-heavy Nasdaq Composite ($COMPQ) may not have hit all-time highs, but its daily chart is worth a closer look. An ascending triangle formation has reached its apex, indicating indecision among investors. The breadth indicators in the lower panels below the price chart echo this indecision.
CHART 1. NASDAQ COMPOSITE CONVERGING AT TRIANGLE APEX. The Nasdaq Composite seems to be at a point of indecision. This could continue until Tech stocks report quarterly earnings.Chart source: StockCharts.com. For educational purposes.
The Nasdaq Bullish Percent Index (BPI) is trending higher but is registering at 57.76, which is slightly bullish. The percentage of Nasdaq stocks trading above their 200-day moving average is also lukewarm, and the Nasdaq advance-decline line isn't showing strong bullish participation.
Investors are probably waiting for Tech earnings. Until then, the index will probably stay put unless some unknown market-moving event occurs before then. The indecision in Tech stocks isn't stopping investors from shifting to other areas of the market.
Mid-Caps Might Flatten
The S&P 400 Mid Cap Index ($MID) broke out of its trading range in September and has been trading above it since then. The index hit an all-time high this week, but has started to show signs of flattening (see last two bars in chart below).
CHART 2. MID-CAP STOCKS BREAK OUT OF RANGE. After hitting an all-time high, the S&P 400 Mid-Cap Index is stalling.Chart source: StockCharts.com. For educational purposes.
The percentage of $MID stocks above their 200-day moving average is 73, which is pretty healthy. The advances still need higher volume to push the index higher. Until that happens, the mid-cap asset class may stall.
Bitcoin Breaks Out, Gold Glitters
Bitcoin has also shown its might this week. The weekly chart shows Bitcoin breaking out of a flag pattern (see below).
CHART 3. BITCOIN BREAKS OUT OF A CONSOLIDATION PATTERN. A breakout plus a possible MACD crossover could send Bitcoin prices higher. Note that the crossover is close to the zero line, an encouraging sign.Chart source: StockCharts.com. For educational purposes.
After hitting the measured move targets following the previous consolidation, $BTCUSD has been in an extended consolidation pattern and has finally broken out. A bullish crossover in the moving average convergence/divergence (MACD) could occur. The crossover is close to the zero line, a criterion I look for. Look at what happened to the price of Bitcoin the last time a crossover took place at the zero line! Bitcoin could move higher by about 42.5%.
Speaking of all-time highs, gold prices are on fire. The SPDR Gold Shares ETF (GLD) has been in an uptrend since early March, and central bank interest rate cuts have propelled gold prices higher (see chart below).
CHART 4. GOLD PRICES ON A TEAR THIS YEAR. GLD has been following a typical uptrend, going through consolidations, breaking out of them, and continuing its ride higher.Chart source: StockCharts.com. For educational purposes.
GLD could potentially rise above $250, but it's difficult to set an entry point unless there's a pullback. If you are considering going long now, apply stringent stop losses.
The Atlanta Fed GDPNow is estimating a 3.4% growth in Q3 2024. This has led investors to think the Fed will not cut interest rates in its November meeting. However, the CME FedWatch Tool shows a 92.9% probability of a 25 basis point cut. So, if there's a rate cut in November, GLD could rise higher. This can change though, considering we're less than three weeks away from the meeting, which happens to be right after the U.S. presidential election.
Looking Forward
Next week is thin on economic data, but earnings season continues. It's not a strong week for Tech earnings, so the Nasdaq could continue its indecisive price action. As for the rest of the market, there could be more of the same. As always, anything could happen over the weekend that could send things awry.
End-of-Week Wrap-Up
- S&P 500 closed up 0.85% for the week, at 5864.67, Dow Jones Industrial Average up 0.96% for the week at 43,275.91; Nasdaq Composite closed up 0.80% for the week at 18,489.55
- $VIX down 11.88% for the week, closing at 18.03
- Best performing sector for the week: Utilities
- Worst performing sector for the week: Energy
- Top 5 Large Cap SCTR stocks: Insmed Inc. (INSM); Carvana (CVNA); Ubiquiti, Inc. (UI); Applovin Corp (APP); Cava Group, Inc. (CAVA)
On the Radar Next Week
- Fed speeches
- September Existing Home Sales
- September New Home Sales
- Earnings from Tesla (TSLA), General Motors (GM), Verizon Communications (VZ), Coca Cola (KO), among others
Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.
Cheers!
