The market began the week by continuing to show weakness into Wednesday where we received last month's inflation numbers that came in slightly above expectations, but below the previous month's reading. The CPI showed inflation levels at 8.3% year over year in April, above the 8.1% estimate. This number caused continued selling until Thursday's open when stocks came roaring back. Friday saw a sharp move higher with a surprisingly strong close. The strong close Friday suggests we can continue to see the market rally early in the week as we retest previous support levels. The million dollar question is how long can the rally last?
While we all want a bottom to be in, the macro picture hasn't changed in any drastic way that would suggest the headwinds the market is facing is in the rear view. The earnings numbers we're seeing are actually coming above expectations. For the S&P companies that have reported earnings, they've shown 9.1% growth compared to the 4.6% estimates. The reason it seems like every stock is selling off on earnings --- is due to the fact that most companies are cutting their 2023 outlooks due to the myriad of issues that have been a constant - supply chain & inflation.
We've got another big week of earnings on tap with retail companies taking center stage with companies like Home Depot, Kohl's, Target & Foot Locker reporting. These earnings reports are a useful indicator that can point to consumer spending. The good news this week is we've got no Fed and no major economic data coming in, so hopefully its a less news-driven week.
This week I'm looking for stocks to continue to gain early in the week and then we'll reassess when the market is closer to a neutral level from an oversold standpoint. We still have room to run to the upside in that regard. The big test for the SPY will be that 408-410 area where we broke down from last week. Bear Market rally's are notably sharp as the 2008 financial crisis had 9 different 5% rallies in the major indices. Looks like we're in the middle of one of those right now, but taking major precaution regardless as I personally don't believe 2022 lows are in. If we see the market reverse to the downside this week I will be watching for reversals across the board and will have short setups on deck.
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