As U.S. inflation has surged to the highest level in over thirty years, inflation is likely to remain in focus in the coming week with investors looking ahead to the latest U.S. monthly retail sales figures along with earnings results from major retailers, including $WMT (Walmart).
With $SPX (S&P 500) erasing its weekly losses from Friday’s late week rally, the bearish Rising Wedge formation of $RSP (S&P 500 equal weight) remains in play. Attention has being turned towards small-cap companies after a nine month consolidation breakout on $IWM (Russell 2000), setting a potential new leg of multi month long market rally leading by this companies. It is worth to note that $GLD (Gold) have also broken out of a multi month long trendline resistance, gaining +2.71% as the leading asset class of the week.
China will provide an update on the economic recovery via industrial production and retail sales and wide there are expectation for a slowdown in its economic recovery, just as Europe is experiencing a fresh surge in Covid-19 infections.
Here’s what you need to know to start your week.
Market Technicals
$SPX (S&P 500) vs $RSP (S&P 500 Equal Weight)
The immediate support to watch for $SPX this week is at 4,645 level, a break of its short term pivotal level.
$QQQ (Nasdaq 100) vs $QQQE (Nasdaq 100 Equal Weight)
After breaking out of its ‘Line in the Sand’, $QQQ is currently trading above all major moving averages. With $QQQ currently 1.57% away from its all time high, $QQQE (Nasdaq 100 Equal Weight) is merely 0.28% away from its all time high. Large Cap growth leaders is likely to see further upside volatility (recovery) after a huge earnings sell off in companies such as $PLTR and $UPST even after beating estimates with its latest Quarterly Earnings.
$IWM (Russell 2000)
$IWM broke out of its nine months box range with spike in volume. The breakout of this box range may establish a setup for Russell 2000 small cap companies for a multi month long rally. New leadership companies (Leading Stocks) is likely to be unearthed from companies in this category for the next leg of long term market rally.
$MMFI (% of Stocks Above 50 DMA) vs $MMTH (% of Stocks Above 200 DMA)
The % of Stocks above 50 DMA and 200 DMA both broke out of a downwards trend line, setting a new month high respectively at 64.36%, and 55.77%. The long term bull market remains intact as a number of names have yet to recovered back above the moving averages since the market correction in early March 2021.
$PCCE (Put/Call Ratio Equity)
The spike level to watch for $PCCE is at 1.00. The market remains in strength at this period.
$VIX (Volatility S&P 500)
Level to watch for $VIX is at 24.50. The last spike at this level happened in late September 2021 where market further corrected -3.8%.
$IEI/HYG (Credit Spread)
Credit Spread remains low at 1.48% since we last monitored a month ago. 1.54% is a level to be watched.
$GLD (Gold)
Gold have broken out of its 15 month long trendline resistance, gaining +2.71% this week. The level to watch in the upcoming week is at $178.
U.S. retail sales
The highlight of the week’s economic calendar will be October retail sales data, due out on Tuesday, with economists expecting an increase of 1.1%, after a 0.7% rise in September.
U.S. inflation has surged to the highest level in over thirty years amid a global supply chain crunch and data on Friday showed that consumer sentiment fell to its lowest in a decade this month, as higher prices eroded living standards.
Investors are betting that the Federal Reserve will have to raise interest rates sooner than currently indicated to stop inflation spiraling upward.
Retail earnings
Third quarter earnings season is continuing to wind down, but investors will get an additional update on the strength of consumer spending this week with results from major retailers, including Home Depot ($HD), Walmart ($WMT), Target ($TGT), and Macy’s ($M).
The earnings reports will face extra scrutiny ahead of the start of the holiday shopping season, with investors looking at guidance from retailers to determine whether inflation will eat into profits or be passed on to consumers.
Third quarter earnings season has largely been upbeat. 459 of the companies in the S&P 500 have reported with 80% of earnings results beating analysts’ forecasts.
China slowdown
The recovery in the world’s number two economy is weakening and data on Monday, which includes reports on retail sales, fixed asset investment and industrial production is expected to confirm this. The loss of momentum in China, a key driver of global growth, is casting a shadow over the uneven global economic recovery from the pandemic.
The recovery in China has been hit by an aggressive approach to containing Covid-19 outbreaks, a massive debt crisis in the country’s real estate sector and an energy crunch that has weighed on manufacturing activity.
Analysts think the country’s central bank is likely to take a cautious approach to loosening monetary policy to bolster the economy as slowing growth combined with soaring inflation fuel concerns over stagflation.
Meanwhile, U.S. President Joe Biden is to hold a virtual meeting with Chinese leader Xi Jinping on Monday, amid rising tensions between the world’s two largest economies.
Pandemic resurgence hits Europe
Europe is seeing a resurgence of the Covid-19 pandemic, adding to headwinds for the region’s already fragile economic recovery.
Europe accounts for more than half of the average 7-day infections globally and about half of latest deaths, according to data compiled by Reuters, the highest levels since April last year when the virus was at its initial peak in Italy.
Several countries, including the Netherlands, Germany, Austria and the Czech Republic are implementing restrictions or planning fresh measures to slow the spread.
Holland entered a three-week partial lockdown on Saturday, the first in Western Europe since the summer. Germany reintroduced free Covid-19 tests on Saturday and Austria is to decide on Sunday whether to impose a lockdown on people who are not vaccinated.
