01.23.2023 | Market Trader Vol. 2 Issue 4 - Weekly Newsletter
Market Trader's Weekly Newsletter brings potential swing setups with a time horizon from days to months depending on price action. The following research is based on Fundamentals & Technical Analysis.
What is included in this week's edition?
WEEKLY REVIEW & LOOKING AHEAD - An overview of current market standing, fundamental matters with implications upon the market, and general sentiment regarding the major US indices. Key takeaways to be mindful of as we look forward to the upcoming trading week.
FUTURES & COMMODITIES MARKETS - A technical review of the major indices, futures, and commodities that represent the overall health of the market.
Briefing's Weekly Review
The 2023 rally hit an air pocket this week. Investors might have been looking to take some money off the table after sizable gains over the previous two weeks. In addition, growth and rate hike concerns, which had been put on the backburner to start the year, seemed to be back in play.
The market initially reacted positively on Wednesday to the welcome slowdown in inflation reflected in the December Producer Price Index (PPI) (actual -0.5%; Briefing.com consensus -0.1%). Any optimism that may have come from the pleasing PPI report quickly dissipated, though, as investors digested the weak retail sales and manufacturing data from December.
Briefly, retail sales fell 1.1% month-over-month in December (Briefing.com consensus -0.8%) after falling a revised 1.0% in November (from -0.6%) and industrial production decreased 0.7% month-over-month in December (Briefing.com consensus -0.1%) after decreasing a revised 0.6% in November (from -0.2%).
The main indices sold off on Wednesday due to the understanding that the Fed is likely to remain on its rate hike path in spite of a weakening economic backdrop, increasing the risk for a policy mistake to trigger a deeper setback. Selling efforts had the S&P 500 take out support at its 200-day moving average.
Market participants also received official commentary on the economy when the FOMC released its latest Beige Book at 14:00 ET Wednesday. On balance, contacts generally expected little growth in the months ahead.
St. Louis Fed President Bullard (non-FOMC voter) added fueled the market's concerns saying that he would prefer that the Fed stay on a more aggressive path, according to CNBC, but added that the prospects for a soft landing have improved.
Thursday's trade looked a lot like Wednesday's trade with investors reacting to more data and commentary pointing towards weakening growth and the possibility of the Fed making a policy mistake.
Building permits decreased for the third consecutive month in December (actual 1.330 mln; Briefing.com consensus 1.370 mln). That report, however, contained one positive element, as single-family starts grew 11.3% month-over-month.
Weekly initial claims were released at the same time, which decreased to their lowest level since late September (actual 190,000; Briefing.com consensus 212,000), implying no new difficulties in the labor market that could put a quick stop to the Fed’s hiking cycle.
JPMorgan Chase CEO Jamie Dimon said in a CNBC interview Thursday morning “I think there’s a lot of underlying inflation, which won’t go away so quick,” adding that he thinks rates will top 5.0%.
As earnings season progresses, the main sticking point for stock market participants is the potential that weaker growth will translate to further cuts to earnings estimates.
Dow component Goldman Sachs (GS) sold off sharply on Tuesday after reporting below-consensus earnings and revenue, along with increased provisions for credit losses.
So far, however, quarterly results have generally received positive reactions from investors. In contrast to Goldman Sachs, Morgan Stanley (MS) received a favorable reaction despite a Q4 earnings miss.
Another notable name that reported earnings was Netflix (NFLX), which surged 8.5% on Friday and led to renewed interest in the tech space. This helped drive the sentiment shift that fueled a strong rally effort on Friday.
The rebound effort to close out the week had the Nasdaq Composite recoup all of its losses while the S&P 500 and Dow Jones Industrial Average put a nice dent in their weekly losses. The S&P 500 was able to climb back above its 200-day moving average by Friday's close.
Only three S&P 500 sectors were able to log a gain this week -- communication services (+3.0%), energy (+0.7%), and information technology (+0.7%) -- while the industrials (-3.4%), utilities (-2.9%), and consumer staples (-2.9%) sectors suffered the steepest losses.
The 2-yr Treasury note yield fell two basis points this week to 4.20% and the 10-yr note yield fell three basis points to 3.48%. The U.S. Dollar Index fell 0.2% to 101.99.
WTI crude oil futures rose 2.3% to $81.69/bbl and natural gas futures fell 5.3% to $3.03/mmbtu.
Separately, Treasury Secretary Yellen notified Congress via a letter that the debt ceiling has been reached, prompting the Treasury Department to begin employing extraordinary measures.
Weekly Performance Heatmap
Overall Market Heatmap
Sector Performance
Looking Ahead
Next week, all eyes will turn to the preliminary fourth-quarter Gross Domestic Product (GDP) reading. Investors will parse through the report for insights into the health of the economy. Manufacturing and services sector activity will also highlight the data docket with S&P Global set to release January’s preliminary Purchasing Managers’ Index (PMI) readings on manufacturing and services sector activity on Tuesday. The Personal Consumption Expenditures (PCE) reading, which is the Fed’s preferred proxy for inflation, is also due to be released.
Internationally, European Central Bank (ECB) president Christine Lagarde is slated to speak at Deutsche Börse’s annual reception on Monday. Investors can also expect S&P Global PMI readings for the Eurozone and the U.K. on Tuesday.
In the central bank sphere, the Fed is scheduled to begin its blackout period on January 21 and last until the end of its two-day monetary policy meeting on February 2.
Fourth-quarter earnings season continues in full force next week. Some notable companies posting profit tallies are Boeing Co, Tesla Inc, American Airlines Group Inc, Visa Inc, and Chevron Corp.
Earnings Calendar
Economical Events
Future & Commodities Markets
/ES - Emini S&P 500
This week, the ES markets opened above 4000 and dipped down to the downside target of 3900, and rallied to close back right under 4000. ES has been in a consolidation zone of 3800 to 4000 on multiple-month bases, below are the same levels for this upcoming week.
Upside: If you hold and stay above the 4000, we could expect to test 4065 and 4113 in the short term.
Downside: If we fail to hold 4000, then we could go down to test the 3952 then 3900.
/NQ - Emini Nasdaq 100
Tech stocks led the rally this week after the NFLX earnings with some strong price action as NQ filled the gap and finished the week under 11700. Let’s look at the upcoming week’s level.
Upside: If you hold and stay above 11600, then we could test 11700 with a chance of trying to get to 12000.
Downside: If we fail to hold 11600, then we could go down 11300 and then test the critical support at 11000.
VIX - Volatility Index
VIX finished the week right under 20. Again, this level is critical so let’s watch what the volatility looks like in the upcoming week.
Upside: 20.01, 21.67
Downside: 17.36, 16.34
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Disclaimer: This newsletter is not trading or investment advice, but for general informational purposes only. This newsletter represents our personal opinions that we share publicly for educational purposes. Futures, stocks, and bonds trading of any kind involves a lot of risks. No guarantee of any profit whatsoever is made. In fact, you may lose everything you have. So be very careful. We guarantee no profit whatsoever, You assume the entire cost and risk of any trading or investing activities you choose to undertake. You are solely responsible for making your own investment decisions. Owners/authors of this newsletter, its representatives, its principals, its moderators, and its members, are NOT registered as securities broker-dealers or investment advisors either with the U.S. Securities and Exchange Commission, CFTC, or with any other securities/regulatory authority. Consult with a registered investment advisor, broker-dealer, and/or financial advisor. By reading and using this newsletter or any of my publications, you are agreeing to these terms. Any screenshots used here are the courtesy of Briefing.com, ForexFactory, Finviz, Tradytics, Wells Fargo Advisor, and/or Tradingview. We are just end-users with no affiliations with them.
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