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The stock market is facing a make-or-break week as investors try to hold onto the latest rally amid Fed moves and big-name earnings

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  • It's a make-or-break week for the stock market and its current rally, according to Fairlead Strategies' Katie Stockton.

  • She said a lot of stocks need to sustain their recent gains by the end of this week to confirm a breakout.

  • But big volatility events like the Fed's expected rate hike and mega-cap tech earnings could derail the breakouts.

This week is make-or-break for the stock market as investors contend with a convergence of key technical breakout confirmations and market-shaking news.

According to Fairlead Strategies' Katie Stockton, the year-to-date rally in stocks helped trigger several breakouts last week that are seeking confirmation this Friday based on the level they finish the week at.

Specifically, the S&P 500's breakout above resistance of 4,020 last week won't be confirmed unless the index closes this Friday above 4,050, Stockton said in a Monday note. The S&P 500 currently trades at about 4,040.

"A short-term overbought downturn cautions against positioning for upside follow-through prematurely. If a breakout is confirmed, next resistance is [about] 4,225," Stockton said of the S&P 500.

A jump to that level represents potential upside of 5% from current levels.

Nvidia is another large-cap stock to watch this week, as it needs to close above $188 this Friday to confirm last week's breakout.

"Should it hold above $188 through Friday, a breakout would be confirmed in a market positive, whereas a failed breakout would be a setback," Stockton said. Nvidia traded around $196 on Monday.

But a lot could happen between now and the closing bell on Friday, as market-shaking news is expected from the Federal Reserve and mega-cap tech earnings.

Fed Chairman Jerome Powell is expected to hike interest rates by 25 basis points at the end of the FOMC meeting on Wednesday, while Apple, Amazon, and Alphabet all report earnings results after the market close on Thursday.

Microsoft reported its earnings results last week and saw an initial 4% pop that led to a 4% decline before the stock ultimately recovered its losses. So if Microsoft is any example, volatility should pick up later this week.

And any negative surprises could derail the recent stock market rally and negate a lot of technical progress made in equities over the past week.

So, no pressure mega-cap tech, but pressure.

"We believe the rally rests on the shoulders of heavyweights Apple, Amazon, and Alphabet, which are showing softness today as the market anticipates their earnings," Stockton said.

Those three stocks were down between 1% and 2% on Monday, about on par with the 1.5% decline seen in the Nasdaq 100.

Read the original article on Business Insider