Chart Advisor: We Live in Interesting Times…

By Jay Woods, CMT

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Your Weekly Roadmap

We live in interesting times…

After a crazy week of headlines, continued political uncertainty and one of 2024’s more volatile week’s in this market, what can we expect next?

Well that’s the worst part and yet the best part of working on Wall St. – you never know what’s going to come next. You just need to be ready to pivot and focus on the bigger picture.

So let’s look at the bigger picture and what traders and investors will be watching over the coming week and what could shape market behavior in the coming months.

Of course all eyes will be on the election. The headlines and uncertainty surrounding the potential outcome, let alone the final candidates, seem to change moment to moment. At the end of the day it is the Fed and fiscal policy that will drive the markets. The market doesn’t care about your politics. I discussed this with Neil Cavuto on Fox Business here last week.

Personal Consumption Expenditures (PCE) could be the final data point the Fed needs to make their first move in rates in over a year. This is what will drive fiscal policy and is the most important data point of the week.

As you know, because I reiterate it every month, the Fed prefers this inflationary measure more than the CPI because it covers a broader range of spending. Unlike the CPI and PPI numbers, we haven’t had many upside surprises in the PCE as it continues to slowly trend lower

Past performance is not indicative of future results

A PCE number in line or better than the 2.5% expectation could be just what the Fed needs to finally give investors that anticipated first rate cut. While the trend slows, it continues to inch lower and closer to the Fed’s target rate of 2%. 

Fed Quiet Period. We won’t be hearing any more from the Fed this week as they enter the quiet period ahead of the July 31st meeting. Knowing that Jerome Powell has telegraphed every move in rates since his term began, do not expect a cut at the next meeting.

However, there has been a convenient leak to The Wall St. Journal during this period in the past. If PCE data comes in cooler then maybe, just maybe, the Fed will give the market its first rate cut in July.\

Another Look at the Small Caps… Last week we focused on the breakout of small caps on a weekly basis going back to 2022. We were looking to get confirmation of the move with a follow through to the upside.

Well we got it – sorta. The index closed up another 1.7%, but well off its weekly highs. The bears will argue the rally may have petered out, while the bulls like myself will argue this is a normal pullback.

Past performance is not indicative of future results

So what does this set-up mean going forward?

We have an attainable upside target of 244 in the IWM which would take it back to its all-time highs. A pullback to the 212 level and its old resistance level, should act as a good support level and a nice entry point from a risk/reward standpoint. You can see me break down the technical set-up with CNBC here.

Earnings. Over the next three weeks we get into the heart of earnings season. This week we get some of the old classics in GM, Ford, Verizon, IBM and AT&T. We also get two stocks in the “Mag 7” when Tesla and Alphabet report.

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Past performance is not indicative of future results

Originally posted 22nd July 2024