The roller coaster in the stock market started last week and it is poised to continue this week as well. And so, strap in and grab your popcorn because the stock market in 2024 is shaping up to be more thrilling than a roller coaster ride at your favorite amusement park. If you thought the ups and downs were just for thrill-seekers, think again. The financial wizards, including Fundstrat’s very own Tom Lee, have gazed into their crystal balls and the forecasts are in. Buckle up for a wild ride through the stock market’s twists and turns!

 

 

Last Week’s NVDA Hysteria

 
Last week, the market was on fire in expectations of Nvidia’s (NVDA) earnings report. Pundits were all over the board divided into two camps. One was predicting a disaster, reasoning that it was impossible for NVDA to maintain its AI momentum and the earnings would disappoint, while the second camp was all in saying that the company will beat again. Even the famous bull Tom Lee was not sure what the company would do and how the market would react. He admitted that NVDA may still beat the estimates but the market could still sell off. “There may not be enough fire power left in the markets.” Tom Lee said. And the market was selling off before NVDA earnings.

But if you were in the second camp and bought the selling NVDA before earnings, you would bank over 13% return in a day or two. NVDA beat the market again. It saved the market from a potential disaster and the stock market rallied. NVDA bulls were cheering their idol and buying more shares and call options. It reinforced their invincibility views and opinions gambling even more money. WallStreetBets is full of bragging how they YOLOed all their college money on NVDA and now they made tuition for the rest of their college. Until they lose it all thanks to their overconfidence in their trading genius. But that’s a different chapter, not yet written.

 

Market Sentiment: The Mood Ring of Wall Street

 

As we stand at the precipice of a new week, Wall Street looks more like a scene from an epic blockbuster—complete with heroes, villains, unexpected twists, and, of course, our beloved bull, standing steadfast amidst the chaos. Imagine the bull not just as a symbol of market optimism but as our guide through the labyrinth of highs and lows, bids and asks.

 

The sentiment on the street is as volatile as a popcorn kernel in hot oil. One minute, it’s all sunshine and rainbows, with stock prices soaring high enough to give eagles vertigo. The next, it’s as if someone shouted “Boo!” in a crowded market, and prices plummet faster than my diet resolutions after spotting a cheesecake.

Experts, wielding their charts and graphs like ancient oracles, predict a week of cautious optimism, peppered with the usual dose of unpredictability. Economic indicators, earnings reports, and geopolitical events are poised to play tug-of-war with investors’ heartstrings, promising a spectacle worth munching popcorn over.

 

Key Factors to Watch in the Stock Market

 

1. Federal Reserve’s Interest Rate Decisions: The Federal Reserve’s decisions on interest rates are crucial for the stock market. A hike in interest rates, as mentioned, can slow down economic growth by making borrowing more expensive, which can impact companies’ profits and investors’ willingness to take risks. The market’s reaction to such decisions can be immediate and significant.

 

2. Inflation Data: Inflation rates are a critical part of the macroeconomic picture. High inflation can erode purchasing power and lead to higher costs for companies, potentially squeezing their profit margins. Investors closely watch inflation data to gauge the Federal Reserve’s next moves on interest rates.

 

3. Earnings Reports: While the bulk of earnings reports may have been released, any latecomers or revised forecasts can still move markets. Earnings give investors a direct insight into how companies are performing and managing costs, especially in a changing economic environment.

 

4. Regional Banks’ Performance: The situation with regional banks can be a key driver for the market. Concerns over the health of regional banks can lead to broader worries about the financial system’s stability, affecting investor confidence and market liquidity.

 

5. Macroeconomic Indicators: Other than inflation, several macroeconomic indicators can influence the stock market, including employment data, consumer confidence, manufacturing data, and more. These indicators help investors understand the broader economic health and potential for growth or recession.

 

6. Global Events: International developments, such as geopolitical tensions, trade agreements, or significant changes in foreign policy, can also impact the U.S. stock market. Investors should keep an eye on global news that could affect market sentiment.

 

7. Sector-Specific News: Certain sectors may be more affected by the current economic environment than others. For example, technology companies might react differently to interest rate changes compared to consumer goods companies. Paying attention to sector-specific news is important.

 

The Stock Market in Overbought Territory

 

Last week the market was easing and it looked like we were heading into a correction. But that was postponed with NVDA earnings. The market moved strongly and it is now even more overbought than it was before. The pullback is now more likely.

 

 

Although all indicators are bullish they are signaling a strong overbought of the market. And though the bullishness may continue next week, investors need to be cautious as a pullback may happen any time and come as a surprise.

 

What to Do as a Trader?

 

As a trader, you should be raising cash and use smaller trades, mainly if trading on margin. The market may turn around fast and margin calls may pop up forcing you to liquidate your trades. That happens usually at a substantial loss. so preserve your cash. Do not scale up your trades and trade with potential pullback in your mind.

Last week selling got me into trouble even though I had cash saved but not enough to get a margin call. Fortunately, I had a few options trades expiring that saved me from liquidating other trades at a loss.

 

What to Do as an Investor?

 

As an investor you may be more lenient in saving cash. If you buy shares in a cash account, you can go fully invested and keep buying more shares. I personally try to be contrarian and hold onto cash unless I see a great opportunity to buy a stock. Even in this market, I am saving cash and not buying shares. There isn’t much to buy anyway. Most stocks are overvalued (though, true, you can find undervalued stocks out there). Therefore, I save cash from dividends and options trading in the ICSH and SGOV funds and wait for an opportunity to buy shares at discount when everyone will be panicking and selling.

 

Earnings Reports: The Plot Thickens

 

Next week’s calendar is chock-full of earnings reports, ready to drop bombshells and plot twists in our ongoing financial saga. Companies from tech giants to mom-and-pop shops will unveil their secrets, revealing whether they’ve been hoarding their gold like dragons or spending like sailors on shore leave.

Watch out for these reports—they’re the episodes you don’t want to miss, potentially turning underdogs into heroes and giants into cautionary tales. Will our beloved bull cheer in triumph, or will it take a moment to ponder the mysteries of the market maze?

 

Geopolitical Shenanigans: Winds of Change

 

Ah, the ever-present backdrop of geopolitical drama—never failing to add a dash of spice to our financial stew. From trade talks to tweets, the winds of change are blowing, and they’re bringing with them a scent of uncertainty mixed with the faint aroma of opportunity.

As investors, we’re like sailors navigating these choppy waters, adjusting our sails to catch the winds of profit while avoiding the whirlpools of loss. Keep an eye on the horizon; sometimes, the most significant opportunities come from the most unexpected directions.

 

The Bull’s Whisper: Words of Wisdom

 

As we gear up for another exhilarating week on Wall Street, let’s take a moment to listen to the wisdom of our steadfast bull: Stay bold, but cautious. Embrace the ride, but keep your eyes open for the turns ahead. And most importantly, keep your sense of humor handy—after all, the market’s too unpredictable to take too seriously.

But to be serious and cautious I need a guidance. So, I developed a stock market gauge that would help me to spot deteriorating markets before it happens. This should also help deciding what to do with the cash.

When the market is in “overbought” status, I will save 100% cash in the ICSH or SGOV funds.
When the market is in “fair” status, I will invest 50% of the dividend income and options trading proceeds in the new stock positions (or increase the old positions). The remaining 50% will be saved in the ICSH or SGOV funds.
When the market is in “oversold” territory, I will invest 100% of the cash in the new or old stock positions and scale up my options trading.

 

 

So, dear adventurers, as we embark on this journey, remember: the market may be a roller coaster, but with a keen eye, a steady hand, and a bit of luck, we’re in for one heck of a ride. Let’s make it a profitable one, shall we?

Until next time, keep your spirits high and your investments savvy.