Follow @jeffsuntrading
It’s going to be a big week with the Federal Reserve widely expected to deliver a second 50 basis point rate hike on Wednesday. Investors will be watching closely to see what Fed Chair Jerome Powell has to say about future rate hikes after Friday’s much stronger than expected inflation data.
U.S. retail sales data will give an insight into whether inflation is eroding households’ spending power and equity markets look set for another turbulent week.
Here’s what you need to know to start your week.
1. Fed to hike again
The Fed is all but certain to raise interest rates by another 50 basis points on Wednesday, adding to the 75 bps of rate hikes already delivered since March.
A further half-percentage-point is priced in for July, with a strong chance of a similar move in September but this is less clear cut.
Friday’s hot May inflation data has revived fears that Powell could flag a faster pace of future rate hikes. Investors are concerned that an aggressive push higher on rates by the Fed could tip the economy into recession.
Market watchers will be keeping a close eye on Powell’s press conference after the policy meeting and on the Fed’s updated economic forecasts and its “dot plot”, which shows the projected outlook for interest rates.
2. Stock market volatility
U.S. stocks recorded their biggest weekly percentage declines since January and ended sharply lower on Friday after the May inflation report put paid to hopes that price pressures may have peaked.
Stocks have fallen for most of the year amid worries over inflation, rising interest rates and the likelihood of a recession.
Market declines had partially reversed over the last few weeks on hopes that a potential peak in inflation would allow the Fed to turn less aggressive later this year.
Key Economic Calendar (Weekly)
The U.S. is to release data on retail sales for May on Wednesday which are expected to slow amid weaker auto sales. Numbers on industrial production, due out on Friday, are also expected to slow but remain solid.
The economic calendar also features a report on producer price inflation on Tuesday, along with data on initial jobless claims and housing starts on Thursday.
Tuesday
8:30: US – PPI: anticipated to rise to 0.8% from 0.5%.
Wednesday
8:30: US –Core Retail Sales: to edge up to 0.8% from 0.6% MoM.
8:30: US – Retail Sales: expected to drop to 0.2% from 0.9% MoM.
10:30: US – Crude Oil Inventories: seen to plunge to -1.917M from 2.025M.
14:00: US – FOMC Interest Rate Decision
Thursday
8:30: US – Building Permits: predicted to have dipped to 1.787M from 1.823M.
8:30: US – Initial Jobless Claims: forecast fall to 215K from 229K.
Friday
8:45: US – Fed Chair Powell Speaks
Top 3 Leading and Lagging Sectors (Weekly)
The best-performing sector of the week was energy. It declined -2.0%, having been insulated somewhat from the selling that hit hard elsewhere on account of the rise in energy prices. The next best-performing sector was consumer staples, which fell “only” -2.8%.
The hardest-hit sectors this week were financials (-6.3%), technology (-6.3%), basic materials (-5.6%), real estate (-5.3%), and industrials (-5.3%). Separately, the Dow Jones Transportation Average declined -7.5%.
Market Breath (Weekly)
% of Stocks Above 50 DMA = 26.77% (-33.47%)
% of Stocks Above 200 DMA = 22.72% (-18.36%)
Market Technicals – (S&P 500, NASDAQ, Bitcoin, Bonds & Credit Spread, NAAIM)
$SPX (S&P 500) vs $RSP (S&P 500 Equal Weight) – (Net High/Low -332)
The S&P 500 ($SPX) fell further by -5.06% for the week. The major indices pushed higher on Monday and Tuesday, but from Wednesday to Friday it was all downhill. The S&P 500 for its part fell nearly -3.0% on Friday (the Nasdaq dropped -3.5%) on broad-based selling interest. The main issue for market participants wasn’t just the worrisome inflation news. Rather, it was the recognition that the Fed is apt to be more aggressive with its policy actions, which will crimp economic growth prospects and, in turn, crimp earnings prospects.
Accordingly, there were pressing doubts that the market provided true value at current levels because forward earnings estimates have yet to come down in any meaningful fashion despite a lot of writing on the wall that suggests the economic
At the current junction, $SPX has failed its initial build up of a bullish wedge pattern, falling below its short term moving averages of 10-day and 20-day respectively.
The immediate support to watch for this week is at 3,810 level, the lowest level traded year to date.
$QQQ (Nasdaq 100) vs $QQQE (Nasdaq 100 Equal Weight) – Remains the Weakest Major Index Year To Date
Tech and growth names have been hard hit since the start of 2022 by a rapid rise in Treasury yields on the back of expectations that the Fed will hike interest rates aggressively to combat high inflation as higher rates can hurt their companies with high valuations based on the prospect of future profits.
$QQQ lost a further -5.67% for the week. The breakdown in $QQQ also see it trading below its momentums short term moving averages (10 & 20-days). $QQQ remains the weakest major index, trading -27.5% year to date. $SPX and $RUT is trading -18.2 & -19.7% year to date respectively.
The support level to watch for $QQQ this week remains at $280, the lowest level traded year to date.
$BTCUSD (Bitcoin / USD) – Bearish Head and Shoulder Pattern Remains In Play, More Pain Ahead
Bitcoin ($BTCUSD) lost ground and plunged lower with -11.05% over the week. $BTCUSD have currently sinks to its 18-month low as US inflation data continued to reverberate through global risk assets. At the current juncture, the highlighted Bearish Head and Shoulder Pattern remains in play.
The level of support to watch for $BTCUSD this week is at $20,000, a round number psychological support level.
$PCCE (Put/Call Ratio Equity) & $VIX (Volatility S&P 500) – Reflection of Imminent Major Sell Off Ahead
The spike level to watch for $PCCE in the last 24 months period is at 1.00. The current reading of 1.129 (+29.30%) implies a probable short term risk-off sentiment of the equity market for the week. This is the highest reading since January 2022. The critical level to watch for $PCCE is at 1.20 for further accelerated sell off in the equities market.
The CBOE Volatility index ($VIX), also known as Wall Street’s fear gauge, also inclined to 32.57 (+17.56%), an elevated level for caution.
The weekly build up in momentum of both $PCCE and $VIX is reflecting a major sell off ahead is imminent for the equities market.
$IEI/$HYG (Credit Spread) – $TNX (10YR Treasury Yield) – Yield Curve Flattening
Market participants are keeping a close watch on credit spreads as one of the better economic signals. Junk bond issuers are perceived to be bigger credit risks, so if economic growth slows or contracts, there will be increased angst that these issuers won’t be able to make good on their interest payments. Hence, a widening high-yield spread is regarded as a leading indicator of difficult economic times which, in turn, often invites a more challenging period for the stock market since difficult economic times translate into weaker earnings prospects.
Credit Spread edged up towards 1.56% (+0.04) as the volatility in the equity market resumes.
The 2-yr note yield spiked 22 basis points to 3.04% following the CPI report while the 10-yr note yield jumped 11 basis points to 3.16%. That left the 2s10s spread at just 12 basis points versus 27 basis points when the week began.
NAAIM Exposure Index 50 (+15.67)
The NAAIM Exposure Index represents the average exposure to US Equity markets reported by members of the National Association of Active Investment Managers. It provides insight into the actual adjustments active risk managers have made to client accounts over the past two weeks. The blue line depicts a two-week moving average of the NAAIM managers’ responses.
This week’s NAAIM Exposure Index number is: 50.
Top Trading Ideas for the Week
$CRC attempted a 52-weeks high breakout yesterday but closed 3% off its day high. weekly chart reflects a breaking off its base but price action remains in printing as we are 2 sessions off a full week.
RS is at new high, impeccable strength in this name pic.twitter.com/SjGcPr9PKN
— Jeff Sun, CFTe (@jeffsuntrading) June 9, 2022
$DK pullback to $32 for short term MAs (10/20) to catch up could spell signs of further mid-term upside to the name. pic.twitter.com/qoT6OG8d89
— Jeff Sun, CFTe (@jeffsuntrading) June 9, 2022
