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May 1st, 2023
Banking Crisis Is Spreading To Other Sectors
The Silicon Valley Bank failure is showing up in earnings reports and the fear is starting to spread to other sectors.
I know – the market took off higher on strong earnings reports at the end of last week, so what in the world am I talking about?
Cybersecurity stocks fell apart this past week even though the SVB failure happened over three weeks ago. As more cybersecurity firms released earnings, it showed that several of their customers were tied to SVB. The bank’s failure postponed deal closures.
Stocks like Cloudflare (NET), Crowdstrike (CRWD), and SentinelOne (S) lost more than 4% in a day.
The market wasn’t particularly fond of the cybersecurity market saying their sales cycle is taking longer than expected to close new deals. Meanwhile, upsells aren’t bringing in as much. While that may be true, I think this is a time to look at the industry overall.
I’m not saying Cloudflare (NET) is a buy just because it’s down 21% in a day.
But you can see that it was up in the $80 range last year and as high as $70 earlier this year. With the stock trading at $47 now, it could be one to watch.
I’m more interested in the industry though because of the threat of artificial intelligence and AI chatbots like ChatGPT making it easier and faster for evil no-gooders to create malware.
Cybersecurity isn’t going away anytime soon, so I’m looking for an opportunity for a rebound.
Before we get to the reports you need to know this week, let’s take a quick look at the S&P 500 (SPY) on a weekly chart and see where the market might be heading.
The last weekly candle has a long bottom wick and the SPY closed at the top of the candle – that’s typically a bullish formation. The only thing that gives me pause is that we still haven’t cleared 420 on this chart – the last swing high.
The question is now some of the mega-caps are out of the way, will there be enough other earnings announcements this week that can keep the momentum going?
Let’s check out what you need to know this week.
Monday – 10:00 am EST – ISM Manufacturing – The Institute for Supply Management offers an index that looks to measure industry expansion or contraction. It’s said to be a leading indicator of economic health. This report is looking to show further contraction. A reading below 50 shows contraction and the estimated value is 46.8, up from last month’s reading of 46.3. This would be the sixth month in a row of a sub-50 reading.
Tuesday – 10:00 am EST – JOLTS Job Openings – The forecast is showing 9.74 million jobs, which is lower than the previous actual reading of 9.93 million. The Fed should be happy to see companies pulling back from new hires. That will help wage inflation head lower as the competition for each open job increases.
Wednesday – 10:00 am EST – ISM Services PMI – This report is all about the service industry. A reading in the index above 50 shows expansion and the market is looking for a reading around 51.8. That would be an increase over the April 5th reading of 51.2, but still a drop from March’s 55.1 reading.
Wednesday – 10:00 am EST – FOMC Statement / Federal Funds Rate – The Fed is likely to announce a 0.25% rate hike. That is likely already priced into the market, but everyone will be waiting to see what the Fed will announce next. Will they hint at staying at this level or even announce plans for a rate drop? I think either case will help the bulls in the market, even if for a short period of time. Keep in mind, the likely reason for a rate drop is because the Fed feels the economy will need help and that’s not usually a good sign for the stock market over a longer period of time. Will this time be different?
Thursday – 8:30 am EST – Unemployment Claims – The market is expecting 240k new claims this week, up from the 230k last week.
Friday – 8:30 am EST – Non-Farm Employment – The month-over-month average hourly earnings are expected to stay flat at 0.3%. The unemployment rate is expected to tick up from 3.5% to 3.6%.
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Editor, Filthy Rich Dirt Poor
Coach, Options Testing Lab
Any trade or trade idea discussed is for educational purposes only. They will not be tracked as an official trade recommendation.
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