Happy Tuesday, traders…
Jeff here.
I’m calling this “The Last Week Before Summer…”
In other words, this might be the last week with major market-moving catalysts for the next few months.
But remember, a slower market doesn’t mean there won’t be any opportunities at all. It just means we need to trade accordingly.
This is due to the cyclical nature of the stock market. The summer tends to be a less exciting time for trading, which happens for a few reasons…
First off, summer is traditionally a slower period because many traders and investors take time off for vacations. With fewer people actively trading, the market often sees lower volumes and less volatility.
Another reason is that the summer months typically lack major corporate and economic announcements. Most companies have already reported their earnings for the previous quarter, with the next round of reports coming in the fall.
Additionally, summer is when hedge funds and institutions rebalance their portfolios and adjust their strategies. These adjustments often lead to more cautious and conservative trading approaches from Wall Street, further dampening market volatility.
The old saying “Sell in May and Go Away” reflects this seasonal trend, suggesting that the best time to invest is from November to April, as these months tend to be more active and profitable.
But trading season ain’t over yet, folks. Tomorrow, we’ll get two events that could set up some crazy moves in the broader market.
With that in mind, let’s get to my Tuesday Market Outlook for this week…
Wednesday’s Double-Whammy
This week, we’re looking at two massive macroeconomic catalysts on Wednesday.
First, we have the Consumer Price Index (CPI) report coming out at 8:30 am EST (before the market opens).
This is a key inflation gauge for the Federal Reserve.
Inflation is one of the most important factors in determining market direction right now, and everyone will be watching closely to see what the numbers say.
Then, on Wednesday afternoon, we’ll hear the Fed’s June meeting decision.
The Fed is expected to keep interest rates steady, but we’re hoping to hear clear hints about when the central bank might start cutting.
So far, Fed Chairman Jerome Powell seems to care more about supporting stock prices than tackling inflation head-on.
However, the timing of any rate cuts is uncertain, and this can majorly affect market sentiment.
If he signals a rate cut soon, it could lead to a counterintuitive sell-off because many traders believe it’s already priced in.
On the other hand, if he delays a cut too long, the market could suffer.
It’s a tricky situation as the Fed is between a rock and a hard place, in a lose-lose scenario of sorts.
Besides these events, we also have to watch out for technical moves in the market.
For example, semiconductors are getting dangerously close to overbought territory.
When stocks get too overbought or oversold in the short term—as evidenced by 14-day relative strength index (RSI) readings—they tend to revert to the mean.
Meaning (excuse the pun) that overextended hype stocks always come back to earth, just as extremely beaten-down stocks will eventually recover at some point.
Don’t go long on overbought stocks, and don’t try to short stocks that are oversold.
As we move past these major catalysts, we’ll likely settle into the typical summer trading I mentioned earlier, which tends to be less volatile.
Shrink the Game
My advice is to keep a high cash position and focus on shorter holding periods this week.
In other words, you should shrink the game — reduce your holding times, position sizing, and watchlist.
In quicker, out quicker, in smaller sizes. That’s the name of the game right now.
As TLC famously sang, “Don’t go chasing waterfalls.”
Focus on a small handful of stocks you trade the best — the ones that consistently make the most money — and you’ll have more than enough opportunity to profit in those names.
Stay informed, trade smart, and let’s see how the week unfolds.
Happy trading,
Jeff Zananiri
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