The Bottom Line:
- Spy, Tesla, Nvidia, and the QQQ are experiencing significant market movements, with the market attempting to rebound but facing resistance at critical levels.
- Upcoming data releases, including the 17-week bill auction and 10-year notes auction, are expected to have a minor impact on the market.
- The Fed is unlikely to provide an emergency rate cut unless a significant event, such as a credit crunch, occurs, despite recessionary indicators and weakening economic conditions.
- Earnings reports from Rivian and Super Micro have been mixed, with Super Micro’s results missing expectations and Rivian’s losses continuing.
- The overall market chart remains bearish, with the potential for a test of the $518 support level in the morning, and a break below $515 could lead to a larger market pullback.
Analyzing Market Movements in SPY, Tesla, Nvidia, and QQQ
Market Rebound and Resistance Levels
Despite the market rebound today, with both SPY and QQQ closing in the green, critical resistance levels were not broken. The market’s ability to continue pushing higher was hindered by a key resistance level, resulting in a rejection towards the end of the day. This suggests that the market may experience a slight dip in the morning tomorrow, and it will be crucial to observe whether the bulls can step in to support the market.
Economic Data and Fed Expectations
Looking ahead to Wednesday, August 7th, 2024, there is minimal economic data scheduled for release, with only the 17-week bill auction at 11:30 a.m. and the 10-year notes auction at 1 p.m. This lack of significant data may result in less market reactivity. Regarding the Federal Reserve, it appears unlikely that an emergency meeting or rate cut will occur unless a black swan event or a severe credit crunch takes place. Although unemployment has risen, triggering recessionary indicators, the current situation does not necessarily warrant an emergency response from the Fed. However, the market still anticipates a 50 basis point cut (71.5% probability) or a 25 basis point cut (28.5% probability) during the September 18th meeting.
Geopolitical Risks and Earnings Reports
Geopolitical tensions in the Middle East, particularly involving Iran and Israel, continue to pose risks to the market. While hoping for a peaceful resolution, the threats of a large-scale attack remain high, according to U.S. officials and Iran itself. In terms of earnings reports, Rivian and Super Micro announced their results, with both companies experiencing challenges. Super Micro missed earnings expectations and provided weak guidance, leading to a significant drop in share price. Rivian, on the other hand, reported losses and negative cash flow, despite meeting revenue expectations. The company reaffirmed its production target of 57,000 units but acknowledged lower-than-expected demand for EVs and significant cash burns.
Upcoming Data Releases and Their Potential Impact
Earnings Reports and Economic Indicators
In the coming days, there are a few notable earnings reports and economic indicators to keep an eye on. On Wednesday, August 7th, 2024, the economic calendar is relatively light, with only the 17-week bill auction at 11:30 a.m. and the 10-year notes auction at 1 p.m. These events are not expected to have a significant impact on the market.
However, recent earnings reports from companies like Rivian and Super Micro have been less than stellar. Super Micro announced a 10-for-1 stock split, but its shares are down nearly 133% due to missed earnings expectations and weak guidance. Similarly, Rivian reported losses and negative cash flow, despite meeting revenue expectations. The company also acknowledged lower-than-expected demand for EVs and significant cash burns.
Fed Expectations and Recession Concerns
The market is closely watching the Federal Reserve for any indications of potential rate cuts. While the market anticipates a 50 basis point cut (71.5% probability) or a 25 basis point cut (28.5% probability) during the September 18th meeting, it appears unlikely that the Fed will hold an emergency meeting or implement an emergency rate cut unless a black swan event or a severe credit crunch occurs.
Although unemployment has risen, triggering recessionary indicators, the current situation may not warrant an emergency response from the Fed. However, the weakening U.S. economy and the developing weakness in previous data are contributing to recessionary fears, which continue to slow down the markets.
Geopolitical Tensions and Market Outlook
Ongoing geopolitical tensions in the Middle East, particularly involving Iran and Israel, pose risks to the market. The threats of a large-scale attack remain high, according to U.S. officials and Iran itself. These geopolitical risks, combined with the uncertainty surrounding the economy and potential Fed actions, are contributing to the overall market volatility.
Looking ahead, it is crucial to monitor key support and resistance levels in the market. For example, if the S&P 500 (SPY) fails to hold the critical support level at 515, there could be a significant pullback, potentially revisiting recent lows. Conversely, if the market manages to break above resistance levels, such as 525 on the SPY, it could signal a potential move higher. Traders and investors should remain vigilant and adapt their strategies based on the evolving market conditions.
The Fed’s Stance on Emergency Rate Cuts Amid Recessionary Indicators
Fed’s Cautious Approach to Emergency Rate Cuts
Despite the recent spike in unemployment and the triggering of recessionary indicators, the Federal Reserve appears to be taking a cautious approach when it comes to implementing emergency rate cuts. Many Fed speakers have come out to suggest that an emergency meeting or rate cut is unlikely unless a significant black swan event or a severe credit crunch occurs. While some officials maintain their previous stance, others are making it clear that the current situation does not warrant an immediate response from the Fed.
Market Expectations for September Meeting
Although an emergency rate cut seems improbable, the market still anticipates the Fed to take action during the scheduled September 18th meeting. According to market projections, there is a 71.5% chance of a 50 basis point cut and a 28.5% chance of a 25 basis point cut. These expectations may shift depending on the upcoming Consumer Price Index (CPI) data set to be released next week. As of now, the market is pushing higher based on euphoria and hype surrounding potential Fed cuts, despite the lack of a clear signal for an emergency meeting or rate reduction.
Economic Weaknesses and Geopolitical Risks
The U.S. economy has been showing signs of weakness, as evidenced by previous data, which has contributed to the growing concerns of a potential recession. These economic uncertainties, coupled with the ongoing geopolitical tensions in the Middle East, particularly involving Iran and Israel, have been weighing on the markets. The risks of a large-scale attack remain high, according to U.S. officials and Iran itself, adding to the overall market volatility. While hoping for a peaceful resolution, investors and traders must remain vigilant and mindful of these geopolitical risks and their potential impact on the markets.
Earnings Reports: Rivian and Super Micro’s Performance
Rivian’s Mixed Earnings Report
Rivian’s earnings report presented a mixed picture for the electric vehicle manufacturer. While the company reported a loss per share of $13, it managed to generate revenue of $1.16 billion, which was not enough to significantly boost investor confidence. The company’s cash flow remained negative, and it reported a loss of $816 million when considering all expenses. Rivian reaffirmed its production target of 57,000 units for the year but also acknowledged that there has been lower-than-expected demand for EVs. The company has been grappling with significant cash burns, leading to the implementation of cost reduction measures. As a result, Rivian’s share price experienced a decline following the earnings report.
Super Micro’s Disappointing Results
Super Micro, a technology company, also faced challenges in its recent earnings report. Despite announcing a 10-for-1 stock split, which is generally seen as a positive move, the company’s shares plummeted by nearly 133% due to missed earnings expectations. Super Micro reported an EPS of $6.25, indicating lower profitability than anticipated. The company’s revenue came in at $5.31 billion, barely meeting expectations. Additionally, Super Micro’s margins dropped significantly to 11.2% from 17% a year ago, and its net income stood at $352.50 million. The company’s first-quarter revenue guidance of $6 billion to $7 billion, while beating some estimates, fell short of the midpoint expectations of $7.48 billion. The combination of a miss in EPS and weak guidance contributed to the substantial decline in Super Micro’s share price.
Market Implications and Investor Sentiment
The disappointing earnings reports from Rivian and Super Micro have contributed to the overall cautious sentiment in the market. Investors are closely monitoring the performance of individual companies, as well as the broader economic indicators, to gauge the health of the market. The lower-than-expected demand for EVs and the significant cash burns reported by Rivian highlight the challenges faced by the electric vehicle industry. Similarly, Super Micro’s missed earnings and weak guidance have raised concerns about the company’s ability to navigate the current market environment. As investors digest these earnings reports and assess the implications for the respective sectors, it is likely that the market will experience some volatility in the near term.
Bearish Market Outlook and Support Level Considerations
Bearish Market Sentiment and Key Support Levels
The overall market sentiment remains bearish, with the S&P 500 (SPY) continuing its downtrend and consistently rejecting off the 50-day exponential moving average (EMA). Despite the recent rebound, where both SPY and QQQ closed in the green, the market failed to break critical resistance levels, resulting in a rejection towards the end of the day. This suggests that the market may experience a slight dip in the morning, and it will be crucial to monitor whether the bulls can step in to support the market.
To turn bullish, SPY needs to close above the 50-day EMA, which has been acting as a stubborn resistance level since the selloff began. The chart shows a series of lower highs and lower lows, indicating a strong bearish trend. In the near term, traders should watch the 522.5 level as resistance. If SPY breaks above this level, it could potentially move towards 527.02. However, if the market fails to hold the critical support levels at 518 and 515, a significant pullback may occur, with SPY potentially revisiting its recent lows.
Economic Uncertainties and Fed Expectations
The weakening U.S. economy, as evidenced by previous data and the recent spike in unemployment, has been contributing to the growing concerns of a potential recession. These economic uncertainties have been weighing on the markets, leading to a cautious approach by the Federal Reserve regarding emergency rate cuts. Despite the market’s anticipation of a 50 basis point cut (71.5% probability) or a 25 basis point cut (28.5% probability) during the September 18th meeting, the Fed appears unlikely to take emergency action unless a significant black swan event or a severe credit crunch occurs.
The market’s expectations for rate cuts may shift depending on the upcoming Consumer Price Index (CPI) data set to be released next week. As of now, the market is pushing higher based on euphoria and hype surrounding potential Fed cuts, despite the lack of a clear signal for an emergency meeting or rate reduction. Traders and investors should closely monitor the Fed’s stance and any changes in economic indicators to gauge the potential impact on the markets.
Geopolitical Risks and Market Volatility
In addition to the economic uncertainties, ongoing geopolitical tensions in the Middle East, particularly involving Iran and Israel, have been adding to the overall market volatility. The risks of a large-scale attack remain high, according to U.S. officials and Iran itself, which has been keeping investors on edge. While hoping for a peaceful resolution, market participants must remain vigilant and mindful of these geopolitical risks and their potential impact on the markets.
The combination of bearish market sentiment, economic weaknesses, and geopolitical risks has been creating a challenging environment for traders and investors. It is essential to closely monitor key support and resistance levels, as well as any developments in economic indicators and geopolitical events, to navigate the market effectively. Maintaining a cautious approach and being prepared for potential volatility will be crucial in the coming days and weeks.
