The financial markets – what’s occurring
Lots of market movement this past week!!!!
UP and Down and back UP again. Rinse, repeat.
It’s a day trader’s, dream conditions. Go with the momentum.
The fundamental issues are-
The US Economy is slowing, Inflation is not, The FED must change Monetary policy (increase rates and stop QE). Government fiscal policy will not be deployed.
While the 4th quarter gdp was strong at 6.9%, the figures are not reliable. PMIs were weak as were retail sales. Oil and wage claims continue higher. Gridlock will stop the Biden getting any more Spending bills through.
Apple and Visa’s results were excellent and led a rally in TECH and FINTECH
The technical analysis issues are-
the Indices will have to get above the 200 day moving averages for Friday’s short covering rally to hold. Seasonality (learn more about this indicator in our Advanced Trading Course!!) does show the S&P 500 may rally later this week. Price tends to retest lows before taking off again. It is possible that the lows have been retested, however.
Themes
Inflation
Friday’s employment cost Index was not as bad as expected still very high. This may have prompted the usual Friday rally.
Fed watch
They are “behind the curve”, they have to raise interest rates (talk now is of a .5% hike in early March). Powell was Hawkish in his press conference on Wednesday. QE will be now halted in early March sooner than they had signalled. Imho they are not Data Depemdant they have to Fight Inflation ( aproduct of their over easy Monetary Policy).
“On one hand the Fed is the furthest behind the curve on inflation that they have been since 1951. On the other hand, US economic growth is already decelerating, so to fix this would be to tighten policy into economic softness, which historically works poorly.”
They have indicated that they will increase rates 3 times in 2022.
“They are hiking at least 4x no matter what happens to growth and inflation over the next 6m-9m. The path to 1.25 is not data dependent.”
Bonds
Shorter bond yields are rising. Junk bond yields are not yet showing concern, 10 year at 1.8 and likely to go higher ( there is a balance to be weighed here -higher inflation =higher yields. Slower economy = lower yields)
All assets/risk are valued in relation to Bond yields imho therefore risk assets have to fall in price.
Economic news due PMIs for January due. Friday see the Employment report. https://www.investing.com/economic-calendar/
Earnings season’s big week is behind us.
The rubbish new tech stocks, IPOs and SPACs have all crashed and are not coming back. ARKK is doomed except for the odd dead cat bounce.
Stock market
After the 2008 financial crisis, $QQQ saw its lowest price in Nov ’08 while $SPY saw it in Mar ’09.
We mirror this situation now.
“In 2021 more money has been put into equities than in the last 17 years combined and now people are surprised there are so many sellers.”
S&P is now -8% off its ATH The January low was -12.4%
Overvaluations caused by easy monetary and fiscal policy will ease as the two economic policies are withdrawn
Apple and Visa’s results were excellent and led a rally in TECH and FINTECH on Friday.
Imo Apple is a one-off company and like most big Tech is still overpriced.
Tesla at last collapsed!!!!
Technical Analysis
My chart guy said
Despite bullish Fri, #ES_F went nowhere all week failing 5x to clear 200dma Plan: Bears get 1 more shot at direct new lows between here & 4457 max. Need <4390 which flushes to a new low for a Feb rally. 4457 clears, we squeeze ~100 points to 4540 strong res
SUPPORT?
High Volume in this Fund may point to a bottom
Support here in software
Falling knife in biotech or Support!!!
Conclusion
Watch the price – failure at resitance will see rapid declines again.
It is a short term game. I am flat and only playing on the short side when intraday signals suggest.
Watch your risk, join momentum moves……
Call or email for discussion.
Colin 01-6644034 0851722729