Welcome to the last week of August.

We enter the week just under all-time highs in the S&P 500. An index that is just 14 trading days removed from a near 10% correction and a VIX that spiked to its third highest level ever.

Battle lines are set; thresholds will be tested.

Technicals vs fundamentals; an easing cycle vs seasonal factors.

Did the market forget its recent angst? Are geo-political concerns overblown? What about election rhetoric? What impact, if any, will any of this have on a market that remains resilient and climbs steadfastly higher.

Let’s discuss the factors that will be in play as we finish out the last week of August…

You Are Here… Thirty-five S&P points away from a new all-time high. Momentum has fiercely swung back in favor of the bulls, but can it continue?

The RSI reading above tells us it can. The market has yet to reach an overbought condition so technically there may be more gas in the tank.

However, recent price action slowed over the last few days and the news of a September rate cut wasn’t enough to push us to new highs. Despite Friday’s stellar performance, the large caps appeared to tire.

Line in the Sand - A potential near term double top may be forming. That old high of 5669 is a number many technicians and traders will focus on all week. For this bull to take its next leg higher we need to get confirmation of a close above this mark.

What will that catalyst be to spring us higher if Powell’s speech wasn’t enough? *In my best Hans Gruber of Die Hard fame’s voice… 

I give you Nvidia earnings.

Nvidia Earnings…

It’s not often you can tout that one company is the most important stock in the market, but it is not a stretch here. Given that it's the last of the “Magnificent 7” to report and it has so much of a weighting in the most important sectors in the world, it’s impact could cause tremors in the entire market.

Nvidia alone accounts for 6.56% of the entire S&P 500. It makes up roughly 21% of the S&P SPDR Select Tech ETF (XLK) and just over 21% of the VanEck Semiconductor ETF (SMH) - so to say it is a dominant force in the marketplace and an important stock to watch is an understatement.

What to watch… There were rumblings of a delay in shipments and/or production of its latest Blackwell chip. How true were these stories and what, if any, impact could it have on its future bottom line?

Sales and demand continue to crush all expectations. When your biggest customers happen to be the other 6 components of the magnificent 7, things should be running well. Those companies continue to spend on capex, how much did Nvidia benefit?

Recent quarterly reaction… The stock has traded higher after nine of the last 12 quarterly reports. The average returns after results has been 6.2%. The high of that range was 24.4% (May ‘23) with the low of the range equating to a dip of -7.6% (Feb. ‘22)

Analyst ratings… According to Bloomberg data, going into this week the stock currently has the equivalent of 66 buys, 8 holds and 0 sell ratings. So we may not see many upgrades, but the average 12 month price target is $141.43. That is only about 10% above current levels and with a good report that number could jump much higher.

Technically… Shares remain in a long term uptrend despite a recent pullback of -30%. In fact, the stock has suffered 20% drawdowns multiple times over the past 18 months yet continues to trend above its 200-day moving average. It has also quickly recaptured its 50-day on the few occasions it has breached it.

The levels to watch are quite clear and, in fact, there is past precedent to reference as we head into Wednesday’s numbers.

Last August they released earnings that blew away analyst estimates and guided the street higher than all expectations. It was one of the best quarters in their history. As a result shares gapped as high as $520 after hours (split adjusted $52), or roughly 8% higher.

However, when the market opened in the normal trading session at 9:30, it wasn’t as euphoric. Shares opened higher at $502.16, but lost all momentum as it only went .50 higher from there and then reversed to close up just a dime on the day. Momentum was lost and the stock traded sideways until January before finally breaking out again. I referenced that event here before last quarter’s earnings on CNBC.

I mention this so you can keep a very close eye on our recent highs of $140.76 set on June 20th. The stock reversed that day as well. In fact the highest close ever was on June 18th at $135.58. For shares to take us on a new leg higher - and quite possibly much of the market with it - watch for a CLOSE above these levels.

If shares pullback, we have very minor support around the 50-day moving average at $120.90 and major support at the $100 level. If it pulls back near there it could be the beginning of another neutral/sideways range until later on this year. I discussed much of my thoughts on the stock here with Benzinga.

Economic Data to Watch. It’s not going to be all about one stock this week. After Jerome Powell mentioned yet again that the Fed would remain “data dependent” when looking to judge the timing and depth of future rate cuts all eyes will be on the “Fed’s preferred” inflation gauge in the PCE.

Core PCE had a recent reading of 2.63% which was rounded down to 2.6%. This month a slight uptick and rounding up to 2.7% may make headlines, but it is generally expected given the tick up in unemployment last month.

Speaking of being “data dependent”, the market will view each data point under a microscope. However, the Fed won’t. They are looking at the overall direction of the trend of the numbers.

While a “one off” may make markets jumpy, the overall trend in inflation is nudging towards that 2% goal, while unemployment has ticked higher and may be on a new trend - more on that in next week’s newsletter with the August jobs number preview.

Easing Cycle v Seasonal Factors.

We may have two major forces fighting each other over the coming weeks. The positive factor are the tailwinds possibly generated by the start of an easing cycle. That goes up against the negative seasonal headwinds of what has been the most volatile and challenging month of the year in September.

Let’s look at the easing cycle as we will go more in depth about September next week.

Now that a cut looks 100% likely for September, what does this historically mean for the S&P 500? Thanks to this chart from Goldman above, we see there have been 8 instances of a new rate cutting cycle going back to the 80’s.

Three of those have happened during a recessionary time. When cuts occur due to a recession the markets fall. When they occur in non-recessionary times, as is the current case, we rally in anticipation of the cut and then again roughly three months on average afterwards and remain higher one year out.

Add this data to the challenge of September - the worst performing month over the last 20 years - and a cut may be a sell the news event at first.

Aftershocks? Speaking of September volatility, I made the speaking rounds last week to discuss the recent historical spike in the VIX on August 5th and why this major quake may not be a one and done event. For more details you can listen to interviews here on CNBC Asia, here on CNBC’s Worldwide Exchange or here on Bloomberg at the 42 minute mark.

Earnings. The season is winding down as over 95% of the S&P 500 have reported quarterly results, but we still have some notable standouts to go.

Stocks in Focus

Outside of Nvidia’s report, there are only a few stocks worth watching. I talked about that and the three stocks featured below here on the Schwab Network last Friday.

Salesforce (CRM) shares dropped 20% after disappointing earnings results last quarter. Since then shares have slowly been climbing higher as they head into Wednesday’s pending report.

Technically, the Dow stock is at a key inflection point based on price activity. Shares continue to trend under its 200-day moving average and struggle to eclipse the $265 mark.

Watch to see if shares can break above this resistance area and break its downtrend that began back in late February. A $290 upside would be a realistic target if the company issues a beat and guide that impresses the street. A failure to do so and watch that rising 50-day moving average around $251 as a potential support area.

CrowdStrike (CRWD) shares suffered a 50% decline from its July 8th peak of $397 after a faulty content update led to widespread outages of Microsoft’s Windows systems globally. The stock has rallied back about ⅓ from its lows but still has a ways to go to recoup losses and gain the confidence of rattled investors.

On Wednesday we will see what, if any, immediate impact the glitch had on their bottom line and if they will address what ramifications may be on future earnings and growth.

Technically, shares are still well below its 200-day moving average at $298. A positve report should get the stock back there, but how far can it go. After snafu’s like the one we saw last month, it may take time for the cyber giant to restore its reputation and maintain and grow its current business.

Any disappointment and watch the recent lows at the $200 level for ultimate support.

Ulta Beauty (ULTA) shares got a huge lift earlier this month as Warren Buffett’s Berkshire Hathaway announced it took a stake in the struggling cosmetics company. Shares are off 23% YTD and report this Thursday after the close.

Shares have a history of gapping after results and the average move post results is +/- 7%. The stock is currently 35% below its all-time high set just this past March.

Technically, bullish investors want to see the stock hold its 50-day moving average around $377 and continue to climb back to its 200-day moving average at $440. It’s a tall order, but maybe Mr. Buffett and his team saw a sparkle and opportunity there.

Economic Calendar

Thursday - Jobless Claims, GDP Revision Q2 8:30; Pending Home Sales 10

Friday - Personal Spending, PCE Index 8:30; Consumer Sentiment 10:00

It was all about the Fed last week as traders focused on the release of the minutes from the July FOMC meeting and then Jay Powell’s speech at the Fed’s annual economic symposium in Jackson Hole, Wyoming.

The minutes gave us clues as to what the Fed was thinking last meeting and why they didn’t cut. After reading the notes it seemed as if it was a 50/50 coin flip to cut at the last meeting and they opted not to. Clearly the market spoke and told them they were wrong just two days later when the July unemployment data came out.

Jackson Hole was the main event of the week on Friday when we finally got to hear from the big kahuna himself.

Quite simply - rate cuts, they are-a-coming. That was the official word on the street delivered from the horse's mouth himself. Fed Chair Jerome Powell said that “the time has come for policy to adjust” and that “the direction of travel is clear”.

Of course in true Jay Powell fashion he managed to say that this will all depend on the data, but if one thing was clear we have officially pivoted and the market liked it. The small caps, which are most sensitive to rates, jumped the most and led the rally into the week’s end.

Housing stocks were also a big beneficiary of last week’s Fed speak. Many of the home builders hit new highs as the S&P Homebuilder ETF (XHB) also made a run at that mark.

Helping the rally was a jump in new home sales in July. Sales in new homes climbed by 10.6% which brings it to an annualized rate of 739,000 units. This would be the highest level since 2022 and an accelerating trend in the right direction.

Another great tailwind was the continued decrease in mortgage rates. Both the 15-year and 30-year rates hit 12-month lows, but are still well off two and three-year levels.

While not at ideal measures, it may be enough to see an uptick in re-fi’s and lure potential first time buyers suffering from a recency bias that have waited for rates to drop and may now test the market.

Peloton (PTON) shares finally started to see signs of a comeback after a downhill ride that had seen shares decline over 98% from its Covid peak of $171.09. The interactive fitness brand reported earnings that were much stronger than analyst expectations.

Management changes and recent restructuring led to shares having their biggest weekly rally ever as shares jumped 50.8%. Despite the big quarter, shares are still lower by -20.5% YTD leaving many to think that this rally may not be the beginning of a turn around but more of a dead cat bounce.

Target (TGT) soared by over 14% after beating quarterly estimates on earnings and revenues. They attributed the success to luring customers back with a rollback in prices and a reduction in shrink. To learn about how they are tackling the shrink factor you can read more here.

For the week, shares finished up 10.9% to close at $158.50. That was enough to bring it to the plus side for 2024 as shares are now up 13.7% YTD.

Due to its surprisingly solid quarter, several analysts upped their price target in shares. The average price target now sits at $175.58 which is 11% above current price levels. Yet, despite the price target upgrades, according to Bloomberg statistics of the 38 analysts that cover the stock only 21 have a buy rating while there are 16 holds and one sell.

CAVA, the Mediterranean fast-casual chain continues to run on all cylinders. Shares surged over 22% on Friday after posting comparable store sales growth of 14.4% compared to expectations of 7.45%. They beat on both EPS and revenue numbers helping to take shares to new all time highs.

For the week shares closed up $23.04 to finish at $122.00. Since its June 2023 IPO, shares have surged by over 470% making it one of the most successful IPOs over the last 18 months.

Heat Map. Everything’s Gone Green is not just a classic New Order song but the theme of this week’s Heat Map. The broadening of this rally was on full display below as 10 of 11 sectors finished higher on the week.

The megacap growth names were mostly flat and energy continues to lag, but overall it was a week where the tide certainly lifted almost all boats.

The rally from the August 5th lows continued as small caps led the charge once Jerome Powell confirmed the next move by the Fed would be a cut. The Russell managed to gain 3.6% but still finds itself slightly lower for August.

The one index that has gotten lost in the shuffle is the mighty Dow 30. The Dow gained 1.3% and managed to close at an all-time closing high. It sits mere points away from its highest intraday peak ever.

Fun Fact - This week’s fun fact, or stat of the week, comes from my fellow CMT Board member, Bloomberg’s Gina Martin Adams. Gina was nice enough to illustrate how much this recent really has truly broadened out.

She noted that the S&P 493 - minus the “Magnificent 7” stocks - is hitting new highs as financials, health care, industrials, real estate, staples and utilities sectors have all broken out. Broadening EPS recovery helped - so far in 2Q 70.7% of companies reported stronger year-over-year EPS gains, the best breadth since 4Q21.

The Real Estate (XLRE) sector continues its monster comeback as the interest rate sensitive sector climbed another 3.7% on the heels of Jerome Powell’s speech at Jackson Hole.

Overall 10 of 11 sectors finished positively. Consumer Discretionary (XLY) and Materials (XLB) both gained over 2% while every other sector outside Energy (XLE) managed to climb by 1% or more.

The 17th Annual LD Micro Main Event is just over 2 months away and we’re sharing a first look at the preliminary company list here.

Register here now to confirm your attendance.

There’s still time to be added to the company roster before we are sold out! Hope to see you there.