S&P 500, Nasdaq approaching reversal - retail beware

The S&P 500 ($S&P 500(.SPX)$ ) was a lot weaker at the open on Monday at the start of the new trading week, and fell under the weight of mega cap losses. U.S. nonfarm payrolls rose 236K in March, slightly below the 240K expected. Unemployment rate ticked down to 3.5% in March compared to 3.6% in February. That indicated that the labour market remained tight and the Fed would need one more rate hike. There are several market moving events happening this week, on Wednesday the March Consumer Price Index will bereleased, followed by Producer Price Index on Thursday and Q1 earnings from several large banks. 

The Dow Jones Industrial Average had a stronger showing than its peers, declining just 0.4% at its low for the day, while the tech-heavy Nasdaq saw a loss of 1.3% at its session low before settling the day close to flat. Notably, the intraday low for the S&P 500 coincided with last Wednesday's worst level (4,072). Today's best performer, however, was the small cap Russell 2000 (+1.0%).

It is interesting to note that the volume for thepast one month has been declining, while the S&P 500 climbed from 3800 level to the resistance level of 4100 where it has met sellers taking profits once again. With both the S&P 500and Nasdaq sitting near resistance levels and a lack of breath suggests that a reversal in the markets is quite likely if there are any negative surprises this week.

Smart Money vs Dumb Money

Comparing the smart money (institutions, hedge funds) vs dumb money (retail traders), dumb money has once again hit a high as seen back in August 2022 when the market peaked. Meanwhile the smart money flow has pulled back.

This kind of makes sense as a lot of mega cap stocks have gotten more expensive as of late.

MSFT

Microsoft has reached close to its August 2022 peak of $294. Microsoft has gained around 20% year-to-date as developments in AI & ChatGPT integration into its products gained traction. Current price levels are over priced and trading at PE of 32x earnings.

AAPL

Apple has similarly hit peak resistance of $165lately. Their stock has gained 29% year-to-date, despite earnings per share and revenue miss at the last earnings date on Feb 2nd, 2023.Current PE sits around 27.6 times earnings, and it's comparable to its PE back in August last year.

PE Ratio MSFT vs AAPL (one year)

As retail traders, we should take prudence when approaching such key dates like CPI data release, etc. No doubt these are great companies to own, but current price levels aren't as attractive as three months ago. As hotter than expected CPI would likely lock in another 25 bp hike at the May meeting, and sending the markets back down again.

$Apple(AAPL)$ 

$Microsoft(MSFT)$ 

@TigerStars