The S&P-500 rallied strongly in a data-heavy week, with an FOMC meeting included gratis. A Fibonacci analysis projects that the index can return to 4600.
As expected, the FOMC raised rates by 0.75%, and now we get a 7-week hiatus until their next meeting.
The PCE consumption index came in as expected but rose to 6.8%, which means the Fed has every reason to keep going.
The earnings were quite strong, except for consumer-facing companies. Tech giants Apple, Microsoft, Amazon, and Google, rallied after earnings. There are no signs yet of an earnings recession. (Factset now projects CY2022 earnings to be +8.9, whereas, in a recession, profits will decline -10% to -30%.)
Key Question
There was a solar flare on Wall Street, with sharp rallies in solar stocks, as Congress moved towards a new tax and climate bill. If passed, the bill currently allocates $30 billion in tax credits to accelerate solar panel manufacturing and another $10 billion in tax credits for clean energy manufacturing. So is it too late to trade these stocks?
Performance Review
As we expected last week from our net bull/bear indicator, the uptrend continued, despite a data-heavy week (165 companies in the theS&P-500 index reported earnings) and the FOMC meeting mid-week. Tech titans Apple, Microsoft, Google, and Amazon all rallied, which helped the QQQ and the $SPX. The $VIX index continued to decline, supporting the view that the summer rally had commenced.
The net bull/bear balance remained above +60, indicating a continuation of the uptrend. Now that the FOMC meeting, PCE inflation data, and mega-cap tech earnings are behind us, we can hope the market will rally for the next few weeks.
The Apple daily chart below illustrates its rapid recovery off the June lows to the 61.8% retracement level. The indicator in the lower panel was pegged at +100 since early July showing a steady uptrend.
Solar Flare
The Schumer-Manchin reconciliation bill has a hefty allocation of $62 billion toward manufacturing clean energy products. There is also greater interest coming out of Europe as they try to diversify away from Russian-supplied natural gas. US solar stocks rocketed higher Thursday and Friday after news broke about the agreement. This week some also reported strong earnings. We start with Enphase, which after a four-month consolidation, took only three days to reach its November 2021 highs.
First Solar (FSLR) will likely be a big beneficiary of the environmental bill (if it passes). It soared 36% in just three days.
Those who prefer ETFs can use the iShares Solar ETF (TAN) instead.
To be cautious, Congress has not yet passed the reconciliation bill, and in any case, the demand will phase in over many years, so this is a long-term position trade. The relatively sharp moves this week may lead to a short-term pullback.
Wrap-up
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Disclaimer
And now for some housekeeping. This publication is for “edutainment,” education, and entertainment, not for investment advice. Past performance is not necessarily indicative of future results. Our disclaimer at chandeindicators.com is included herein by reference.