Will Stocks Bounce at This Key Level After Last Week’s Hard Fall?

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Will Stocks Bounce at This Key Level After Last Week's Hard Fall?

Stocks fell hard last week. Now they may need to hold a key level.

The S&P 500 declined 4.8 percent between Friday, June 5, and Friday, June 12. It was the biggest weekly drop since the market started rebounding from coronavirus in late-March.

The index briefly fell below the psychologically important 3,000 level before rebounding. It also tested but held its 200-day moving average. Some momentum followers may view that as potentially bullish — especially with stocks up 18 percent since the start of April. Did you know the S&P 500 having its best quarter since the last three months of 1998?

Almost all the drop last week came after the Federal Reserve pledged to keep interest rates low. The stance was widely expected, causing traders to “sell the news.” There were also worries about more coronavirus cases as social lockdowns end.

Energy, banks and airlines fell the most. Those risk-on sectors previously led the rally as the economy reopened. Safe-havens like bonds and gold inched higher. All told, more than 95 percent of the S&P 500’s member stocks lost value last week.

S&P 500 index, daily chart. The 3,000 level is shown, along with the 30- and 200-day moving averages.
S&P 500 index, daily chart. The 3,000 level is shown, along with the 30- and 200-day moving averages.

Economic Data Improves

Fed officials predicted the economy will shrink 6.5 percent this year and rebound 5 percent in 2021. The central bank also sees a gradual rebound in employment as businesses reopen.

Some data showed improvement. Initial jobless claims not only declined for the 10th straight week. They were also better than feared for the first time since March 12.

Housing remained strong. Mortgage applications to buy a house rose for the fifth straight week. A second report by Black Knight showed the number of Americans needing relief on their loans down by 77,000. It was the second straight week of improvement.

Biggest Gainers in S&P 500 Last Week
Take-Two Interactive (TTWO)+4%
Clorox (CLX)+3.8%
Adobe (ADBE)+3.5%
Activision Blizzard (ATVI)+3.2%
Electronic Arts (EA)+3.1%

Electric Cars and the Nasdaq

The Nasdaq-100 made another new record high before the Fed meeting. It’s the only major index to push above its pre-crash levels. Major growth stocks like Apple (AAPL), Facebook (FB), Amazon.com (AMZN), Microsoft (MSFT) and Tesla (TSLA) have fueled the move.

Speaking of TSLA, last week was huge for electric cars. Nikola Motors (NKLA) leapt to the top of news after saying it would take orders for its new Badger pickup truck on June 29. Other companies like Nio (NIO) and Plug Power (PLUG) also climbed. This industry is gaining prominence as earth-friendly ESG investing spreads.

Chinese technology stocks were another strong corner of the market after breaking out to a new 52-week high the previous week.

The two biggest earnings reports were mixed. Software maker Adobe (ADBE) hit a new all-time high after beating estimates. Lululemon Athletica (LULU) slid from record territory after coronavirus caused the retailer to miss.

Krane Shares China Internet ETF (KWEB), daily chart, with 50- and 200-day moving averages.
Krane Shares China Internet ETF (KWEB), daily chart, with 50- and 200-day moving averages.

Powell, Housing and Retail Sales

This week brings a few more economic events, but few quarterly results.

The main item today is the New York Fed’s Empire Index. It one of the fastest-moving and most up-to-date reports. That could make it more important as a measure of the economy’s recovery from the Covid-19 pandemic.

Biggest Decliners in S&P 500 Last Week
Oneok (OKE)-25%
Nordstrom (JWN)-22%
PVH (PVH)-21%
Capri (CPRI)-18%
Concho Resources (CXO)-17%

Tomorrow brings retail sales for May and June’s index of housing sentiment. Fed Chair Jerome Powell also begins two days of testimony on Capitol Hill. Homebuilder Lennar (LEN) reports earnings in the premarket, and Oracle (ORCL) follows in the afternoon.

Housing starts, building permits and crude-oil inventories are the big items on Wednesday. Jobless claims are due Thursday morning.

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David Russell is VP of Market Intelligence at TradeStation Group. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.