Week Ahead on Wall Street (SPX QQQ): Earnings season is back, can banks boom again?

Equities tank on Thursday but fell good Friday saves the week.
Apple hits our target of all-time highs above $145.
China the empire strikes back as DIDI concerns hit related names.

Ivan Brian FXStreet

Another week, another nothing to see here, let's move on to record highs. It was not quite so simple, as the middle of the week gave us a few scares. China decided to celebrate the fourth of July weekend by hitting some US-listed Chinese stocks as many were caught in the crossfire from the DIDI saga. Alibaba (BABA) shareholders had a serious case of deja vu as they watched on. BABA at least retook the $200 level on Friday, ending the week on a positive note.

The bond market decided to have one final shake-up before most head off for a summer lull. Everyone piled in, closing positions, causing yields to dump alarmingly. Equity markets thought the world was ending (again!) and piled out of stocks. The Fed and Oil added to headwinds faced early in the week. Oil popped to multi-year highs above $77 as OPEC haggled and harmony went out the window. Saudi Arabia decided to up prices for the US and EU before UAE put a slide on prices by announcing it planned to increase supply to take advantage of higher prices. The Fed minutes then added to bears glee by implying that tapering and rate rises were on the minds of several Fed members much earlier than previously expected. And just to finish things off, the delta variant of covid caused lockdowns in Australia and Japan and delayed reopening plans in Europe. Despite all this, by Friday all was forgiven and harmony restored. Equities went on a Friday charge with Apple (AAPL) stock finally hitting our all-time high call. We first made this one back in early June so we are currently taking plaudits!

Meme stocks were not having such a great week and retail took a bit of a hammering on the China news. Quite a few retail favourities have exposure to China so the likes of the electric vehicle manufactures (NIO, XPEV) took a hit as did Tesla. The Thursday wobble looked like a meme stock massacre was in the offing but Friday saw recoveries but AMC and GameStop (GME) lagged. AMC was a curious case in point as retail investors appeared to force the hand of CEO Adam Aron into backing down from plans to issue more stock.

Speaking of retail, the stranglehold on shorts continues. The market ear people brough this to our attention. The latest short data from Goldman Sachs below showing a continuing slide in shorting. Is it really worth it if the retail crowd are going to squeeze you!

Fund flow data

The latest data from Refinitiv/Lipper Alpha shows net outflows of just under $800 million for the week to July 7 for equity Exchange Traded Funds (ETF's). The S&P 500 (SPY) saw the largest inflows with $3.1 billion while the Russell 2000 (IWM) lost $852 million, the second largest outflow after Real estate (IYR). Conventional equity funds saw $3.5 billion outflows for the week, the thirteenth week of net outflows in the last fourteen.

SPY stock forecast

More record highs on Friday and looking like a record high close. Support at $420 is strong with a huge volume profile bar, so this is our buy the dip zone to try, if we ever get a dip again! A break of $408 will see an acceleration most likely as volume thins out. Trendline resistance is at $447. Oscillators are neutral but the Moving Average Convergence Divergence (MACD) is not matching the highs and is giving a bearish divergence. As ever please use stops and manage risk.

The Russell 2000 (IWM) has broken the lower trendline and just retraced to test it. Failure adds to what looks like a bearish triple top. The longer this remains bearish the less likely the Nasdaq (QQQ) and S&P 500 (SPY) can keep on rallying.

QQQ stock forecast

Lagging the SPY today but that channel looks more like the ascent of the Eiger. Can we test the top of it at $370? That is barely 3% so not much given the market's constant hunger for highs this year. Volume up here is terrible though so not giving much credence to the move. The Relative Strength Index (RSI) is now firmly in overbought territory and it usually proves correct eventually, see the last time back in September. A buy the dip zone to try looks like $340-342 with a strong volume profile support.

Wall Street Week Ahead

It's back. Earnings season roars back with banks as ever leading the charge. Last quarter the investment banks smashed it so the bar has been set pretty high. Record highs in stocks should underpin equity trading revenues, corporate transactions have slowed though as SPAC and IPO deals have fallen this quarter so interesting times ahead. Delta (DAL), the airline not the virus, kicks off the airline's season. Optimism abounds despite delta (the virus this time) likely hampering European schedules. Themes to watch for are input costs with oil prices sky high and airlines kinda use a lot of that stuff! So hedging data, if any, would be useful.

Source: Benzinga Pro

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Author

Ivan Brian

FXStreet

Ivan Brian started his career with AIB Bank in corporate finance and then worked for seven years at Baxter. He started as a macro analyst before becoming Head of Research and then CFO.

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