Numerous Federal Reserve members are speaking this week after last week’s disappointing CPI inflation data. The next FOMC meeting starts in two weeks, and while nobody expects the Fed to cut rates in January, hopes for a March rate cut are starting to wane. As a result, stocks are starting to sell off. For a full understanding of how the Federal Reserve is starting a stock market crash, make sure to watch my latest video here: https://www.youtube.com/watch?v=ZeqETpieyAQ&list=UULFxFRGG-_23Kqxe0YexDc1eg.
Last Week Recap
CPI inflation data came in higher than expected last week. While the stock market rallied early in the week, the rally was halted after CPI inflation showed a 0.3% month over month increase and a 3.4% year over year increase. Due to the higher than expected CPI data, investors started to second guess whether the Federal Reserve would do a rate cut in March, and this caused the rally to come to an abrupt halt.
All last year we saw stocks rally on hopes of better than expected Fed Rate cuts, only to fall again as the market eventually priced in the reality of what the Federal Reserve was actually going to do. And that appears to be happening again. The S&P 500 is showing early signs of topping out and starting to go back down, while the Russell 2000, which often precedes the overall market, fell for a 3rd week in a row last week.
Bank earnings also disappointed on Friday. While profits were better than expected, revenue was down. And this is causing concern as lower revenues will eventually lead to lower profits. As a result, bank stocks fell last week. Now the question is whether or not this is a preview of what will come for companies in general this earnings season, or if the results are limited to just the banks.
Market Sentiment
Market sentiment on the CNN Fear and Greed Index (https://www.cnn.com/markets/fear-and-greed) remains in the Greed stage at 71. but the individual makeup of the Fear and Greed index shows that the S&P 500 might be topping out and about to start going back down. Specifically, Stock Price Strength and Stock Price Breadth are both indicating that the S&P 500 has topped out and is about to pull-back.
While the market might be topping out, market sentiment across the board remains bullish for now. The VIX fell last week to close near its 52 week low. If the market is about to fall, options traders aren’t pricing it in.
Technical Analysis
Despite last week’s rally in the S&P and NASDAQ, the daily charts haven’t changed. The candles are all still bullish, the RSI is bullish, and the MACD is bearish. The candles on the DOW, S&P, and NASDAQ are all above their respective 10 day EMAs. The market overall remains quite bullish.
Only the Russell 2000 is showing signs of bearishness. On the Russell 2000, the candles are below both the 10 day and 21 day EMAs, the MACD is bearish, and the RSI is neutral. Overall, the market remains bullish, but the Russell 2000 turning bearish is cause for concern.
While the weekly charts remain 100% bullish across the board, they still have not corrected their overbought situations. The DOW especially still remains a full 3% above its 10 week EMA, 5% above the 21 week EMA, and 9% above the 50 week EMA, which often acts as a support level during a pull-back. The weekly charts are still indicating a further decline is needed to correct the overbought situation the market is currently in.
Economic News
While there is some housing data and GDP data coming in this week, the most important thing to watch out for are all of the Fed speakers. This is the last week Federal Reserve members can speak before their January meeting, and this is the week where the Federal Reserve will lay out the expectations for when the first Fed rate cut might occur. Last week Fed members downplayed a possible rate cut in March. This week, we’ll have to hear from other Fed members on their thoughts after the higher than expected December CPI inflation data.
Here’s the full list of all of the economic news coming out this week as well as the time each report is being released: https://www.marketwatch.com/economy-politics/calendar
Here’s what time each Fed member is speaking this week: https://www.federalreserve.gov/newsevents/calendar.htm
Earnings
Earnings Season continues this week with more banks. Bank earnings last Friday weren’t good. As we get into more of the regional banks this week, we’ll have to see if the disappointing earnings last week were limited to only the largest banks, or if the problems have spread throughout the banking sector.
Other Things to Know
The SEC approved 11 spot bitcoin ETFs last week. While this was expected to cause Bitcoin to rally, it actually had the opposite effect temporarily as Grayscale’s Bitcoin, which had been locked up for years, was released to the market. Now that Grayscale’s Bitcoin selling is nearly complete, the next few weeks should give us a clear indication of just how high Bitcoin might go. For a full understanding of Spot Bitcoin ETFs, make sure to watch my explainer video here: https://www.youtube.com/watch?v=p5gPdxJ0RNU&list=UULFxFRGG-_23Kqxe0YexDc1eg&index=2.
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Wishing you the best of success trading this week,
Stock Curry