Week Ahead: US stocks on knife edge ahead of Powell's speech. Why Tesla could tumble. And two scenarios with Nvidia
This week ahead report covers; US stocks being on a knife edge, why they could stumble further this week, and what to consider. Plus, we share how some investors are profiting on Tesla's shares pulling back and why another major Tesla tumble could occur. Plus, Nvidia's results are out this week; we cover two potential trading scenarios. Plus more.
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What's happening in markets; with two major things you need to know now...............................
1 - US equities fall for the 3rd week in a row, marking the biggest red-run in 2023. Plus, the narrative for investing in oil quickly changed. Why?
The S&P500 $S&P 500 Index(.SPX.US$ has now closed lower for the third week in a row, losing 2.2% last week, along with Nasdaq 100. The ETF, the QQQ $Invesco QQQ Trust(QQQ.US$, has done the same, as investors are fearful that higher interest rates will linger and therefore pressure companies' forward earnings and cashflows and thus their shares, all at a time when the market (as measured by the S&P500 and the Nasdaq 100) is trading above its average price-to-earnings ratio (meaning stocks seems expensive). And this is all while global growth is slowing, which points to slower company earnings as well. This thinking has pushed bond yields to near 2007 highs. And as higher bonds yields pressure equities, we are seeing equities again retreat.
2 - The scenario for oil quickly turned bearish with oil seeing its first weekly drop since June.
This came on the back of concerns that China's economy is running out of steam. Consider that oil tanker demand from China has now dramatically fallen. Another bearish consideration for oil is that since 2008, the oil price and the Chinese producer price index (PPI), have had a strong correlation, and both have been pressured. Another consideration for oil, is that Chinese oil imports slowed, and actually dropped in July, and this suggests that China has excess oil supplies. This means, the world's biggest consumer of oil, China, may likely be buying less oil in the short term and this could keep oil prices lower until China demand/buying returns.
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Potential investing and trading ideas to consider and major catalysts...............................
Tesla's shares were the biggest drag on the market last week, falling 11%. Why could Telsa shares fall further this week?
Tesla $Tesla(BK0426.SH$ shareholders are trimming profits, while others are topping up on their long-term holdings, believing the EV giant will be the dominant player when fuel-powered car sales are banned. However, there are a lot of investors using shorting instruments - to hedge their positions in the event of another likely sharp fall in TSLA shares.
This means some investors are buying instruments that seek to make a profit when Tesla shares fall, for example, we are seeing some investors buy the ETF, Direxion Daily TSLA Bear 1X Shares $DIREXION DAILY TSLA BEAR 1X SHARES(TSLS.US$. The reason for this, is that Tesla shares have fallen below their 100-day simple moving average (SMA) and are about 9% away from their 200-day SMA. If Tesla shares fall below the 200 SMA there is a risk of a further sharp fall, as it would mark a bearish signal and trigger technical selling. The last time Tesla fell below its 200-day SMA, TSLA shares fell ~60%.
Another consideration with Tesla is that lithium demand has slowed, along with China's lithium-ion battery demand, which could, in theory, be seen as leading indicators for Tesla EV production and Tesla's outlook. If you believe Tesla shares could fall further, you could consider taking some profits or averaging down. Alternatively, you could hedge your Tesla position by buying a short ETF. Or, if you are a long-term believer in Tesla, you could wait and see how the dust settles and slowly start to buy shares in the EV giant.
This week's major catalyst will be Jerome Powell's Jackson Hole speech on Friday. If we see Fed Chair Powell flag further tightening is coming, equities may fall further
...and investors really need to bare that in mind. From a technical perspective, the S&P500's $S&P 500 Index(.SPX.US$ 15-day simple moving average crossed below and under the 30-day simple moving average. Put simply, this technical indicator scenario suggests a further pullback could be coming. The last time this scenario occurred was in February, and the market fell ~4.3% before recovering.
However, the biggest risk is that the market, the S&P500 is just ~1% away from hitting its 100-day moving average (at 4,296), and 5% away from hitting its 200-day simple moving average (at 4,129). If the market falls below either level, it will likely trigger some quant investment managers to sell or take profits from the market.
Nvidia's earnings are ahead, this could be a major catalyst for chip-making ETFs.
Nvidia $NVIDIA(NVDA.US$ shares have risen by 196% this year, but, shares of the chip-making giant have now fallen under its 50-day simple moving average, which is often considered a bearish signal.
Consider Nvidia is a primary supplier of chips and chips that train AI models. Also consider over the next eight years, spending on AI chips is expected to grow at a nearly 30% annual growth rate, to top $165 billion by 2030.
If Nvidia's results miss expectations of $2.08 earnings per share and if it delivers a weaker-than-expected outlook on the back of economic uncertainty, then its shares will likely fall.
All in all though, if its shares do retreat, we will likely see some investors use the pullback as an opportunity to buy into a leading company. Also, consider watching chip ETFs that could move on the back of Nvidia's results. ETFs to watch, iShares Semiconductor ETF ( $iShares Semiconductor ETF(SOXX.US$), VanEck Semiconductor ETF ( $VanEck Semiconductor ETF(SMH.US$) and SPDR S&P Semiconductor ETF ( $Spdr Series Trust Spdr S&P Semiconductor Etf(XSD.US$).
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Invest in your financial future today. And stay on toes.
From Team moomoo AU.
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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Moomoo Official Market Strategist
Investment strategist. I dissect markets and share investment opportunities. I am featured on TV & radio etc
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i short the sheriff : Quality analysis. Thanks