We finally can kick earnings to the curb after this week. We still need to contend with the likes of Apple (AAPL) , Advanced Micro Devices (AMD) , Starbucks (SBUX) and Qualcomm (QCOM) , along with roughly one-third of the S&P 500 companies reporting. However, outside of Apple, I believe all eyes will be on the Fed Wednesday and, to a lesser extent, the April employment numbers at the end of the week.
Will we see another quarter-point rate hike from the Fed? The vast majority of the market seems to think so. That in and of itself wouldn't be bearish. No hike might even kick a lot of buying into small-caps. But let's assume the Fed does increase as everyone expects. Will its words hint at one or more increases for the second half of 2023?
I recently discussed how many of my colleagues from different parts of the US saw little change in the spending habits of those around them despite rising prices. Thus far, earnings results have supported that observation. If it were not for continued issues in the banking sector and a weak-trending GDP, I could envision the Fed leaving the door open to a hike.
As it stands now, I expect the Fed to point to a pause. But let's be clear. The pause only will be temporary if the banking sector stabilizes and we don't see a slowdown in the increases of prices and wages.
First Republic Bank (FRC) and Tesla (TSLA) did break down and follow through on their charts as outlined. Ironically, at the same time, we finally saw the Invesco QQQ Trust (QQQ) and the SPDR S&P 500 ETF (SPY) break out to the upside.
QQQ finally has broken above the key $322 resistance level. My approach would be to use a smaller size entry and pair it with the 21-day exponential moving average (EMA) as a trailing stop. The upside could be as high as $330 to $335, but I would prefer to use a trailing stop to dictate my upside than guess at a target.
If QQQ or SPY catches upside momentum, consider tightening the stop to the 10-day EMA. It's worth noting either the Fed or Apple could undo this breakout or kick it into high gear. Apple will report post-market on Thursday, so a trader may need to consider making an after-hours move to exit the position. At the same time, the Fed is likely to create short-term, wild intraday volatility. Between Apple's earnings and unknowns regarding the Fed meeting, now is not the time to roll into anything, long or short, with significant size.