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3 Key Indicators for the Week Forward

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3 Key Indicators for the Week Forward

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Sadly, we’re again to our ol’ 2022 sample of “wait and see,” the place the S&P 500 (SPY) sort of churns sideways till the subsequent massive CPI report or Fed assembly. However there are three issues I am anticipating over the subsequent few weeks. Learn on to seek out out what they’re.

(Please get pleasure from this up to date model of my weekly commentary initially revealed February 10th, 2023 within the POWR Shares Beneath $10 publication).

Market Commentary

Every of those might make a significant distinction within the course the market strikes subsequent.

Vital Technical Assist/Resistance Ranges

Since September, the S&P 500 (SPY) has been making an attempt to interrupt again above the 4,100 degree. This worth has been an necessary assist/resistance degree for the index since February 2022 (and even additional again, relying on who you speak to).

After breakouts failed in September, November, and December, we lastly had a big break above this degree in February…

…just for issues to crash again under after this week’s promoting.

Each time we fail to efficiently break above and STAY ABOVE this degree, the psychological resistance will get even stronger and subsequent breaks/failures change into much more significant.

This does not imply we’ll see a speedy selloff (possibly some mild promoting) subsequent week, however it does imply this degree will probably stay our ceiling till March’s FOMC assembly except we get an enormous shock.

January CPI Report

…which we might probably get as quickly as subsequent week.

That is going to be a very powerful report to look at, and will probably be launched early on Tuesday morning. (Transfer over, Valentine’s Day.)

Hopefully, traders will LOVE the outcomes and our bull market will get some extra foundational assist as an alternative of the semi-exuberance that appears to have propelled the market within the first month of the 12 months.

Analysts are presently anticipating a small decline in inflation. The Fed has began acknowledging encouraging developments within the newest knowledge releases, as effectively. (I discussed a few of this again in my January 13 evaluation of the December CPI report.)

However there’s an opportunity the information will not be as reassuring as we hope. Sure power costs like crude are now not declining, and wage progress and the labor market have each remained sturdy.

The large wild card shall be “shelter,” which has the biggest single weighting within the CPI report, which has analysts blended on whether or not that shall be greater or decrease.

Both means, the small print will present us whether or not Powell’s considerations are deserved and whether or not we’ll get many extra fee hikes on the subsequent few FOMC conferences. Which brings us to…

CME FedWatch Instrument

This can be a actually neat instrument that I am certain a few of you’re already conscious of. It is the CME FedWatch Instrument, and it reveals you precisely what’s “priced in” to the market when it comes to future fee hikes.

And with the market hanging on the Fed’s each phrase, it is one of the necessary risk-assessment instruments we’ve at our disposal.

…in different phrases, we’ve a real-time have a look at what number of fee hikes merchants are literally anticipating over the subsequent 12 months, based mostly on the worth motion we’re seeing in fed funds futures.

So, proper now, we are able to see that 100% of merchants imagine we’ll get some kind of fee hike on the Fed’s March 22 assembly. The overwhelming majority of merchants imagine we’ll get one other 25-bps hike, whereas about 10% imagine we might see a 50-bps hike.

However what’s actually fascinating is that it additionally reveals what merchants have been pondering at some point in the past, one week in the past, and one month in the past. Discover that, again on January 10, as many as 15% of merchants thought there was an opportunity that we might have NO fee hike in March.

However after Powell’s February 1 press convention (the place he emphasised there was nonetheless extra work to be carried out) and the surprisingly sturdy January labor report, that quantity had dropped to solely 2.6%.

As soon as folks had somewhat extra time to digest that information, the quantity dropped to 0%.

It is no surprise the market rally has moderated. We’re nonetheless working beneath the concept there is a ceiling stopping any sort of continued bull breakout for so long as we proceed to see rising rates of interest.

These numbers completely correspond to what we’re seeing out there…

January: “Hey, we would even be carried out with this complete fee hike factor by March! Let’s occasion!”

altering to

Feb. 3: “Hmmm, we’re most likely going to get some sort of fee hike in March, however DEFINITELY not an enormous one. Perhaps I ought to cease shopping for a lot.”

altering to

Final Week: “Effectively, we’re DEFINITELY going to get a 25-bps hike in March… and possibly even a 50-bps hike. Perhaps I ought to take a few of these January beneficial properties off the desk…”

Perhaps that is somewhat Monday morning quarterbacking, however you’ll be able to’t deny that the market’s largest driver has been (and nonetheless is) financial coverage and the way excessive and the way lengthy the Fed goes to hike charges.

We have been speaking for months in regards to the disconnect between what Powell says and the way the market acts and this instrument helps you monitor that in actual time.

Conclusion

I do know this commentary feels fairly bearish, however it’s truly extra about being cautious. I feel there’s nonetheless an opportunity that we’re via the thick of it and we’ve extra up in our future than down, however that is not a certain factor but.

So we’ll play issues secure for now… and equipment up for subsequent week!

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All of the Finest!

Meredith Margrave
Chief Progress Strategist, StockNews
Editor, POWR Shares Beneath $10 E-newsletter


SPY shares closed at $408.04 on Friday, up $0.95 (+0.23%). Yr-to-date, SPY has gained 6.70%, versus a % rise within the benchmark S&P 500 index throughout the identical interval.


In regards to the Creator: Meredith Margrave

Meredith Margrave has been a famous monetary professional and market commentator for the previous 20 years. She is presently the Editor of the POWR Progress and POWR Shares Beneath $10 newsletters. Study extra about Meredith’s background, together with hyperlinks to her most up-to-date articles.

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