U.S. markets will be closed on Monday for Juneteenth.
Federal Reserve Chair Jerome Powell will be in the spotlight again this week when he testifies before Congress as the market will try to gauge the size of the expected rate hike at the Fed’s upcoming July meeting.
Meanwhile, equity market volatility looks set to continue along with the rout in cryptos.
Here’s what you need to know to start your week.
1. Stock market volatility
Each of the three major Wall Street indexes fell for the third week in a row last week hit by fears over the growing likelihood of a recession as the Fed and other global central banks try to stamp out inflation. The S&P 500 slipped -5.8%, whole both Dow Jones and Nasdaq lost -4.8% each. This is the largest weekly decline since March 2020 for S&P 500, and biggest drop since October 2020 for Dow.
The benchmark S&P 500 index has slumped about -23% year-to-date. Each of the major indexes also set new 52-week lows.
2. Crypto winter
Bitcoin was trading at around $19,571 on Sunday after falling to a low of $17,593 on Saturday – its weakest level since December 2020.
It has lost about -60% of its value this year, while rival cryptocurrency Ethereum-backed ether is down -74%. In 2021, Bitcoin peaked at more than $68,000.
The cryptocurrency sector has been hit by growing signs of stress in the industry after last month’s collapse of the Terra blockchain. Earlier this month lending company Celsius froze withdrawals and transfers between accounts, while crypto companies started laying off employees. Crypto hedge fund Three Arrows Capital said last week it has suffered large losses.
The rout has coincided with a selloff in stocks which could further challenge investor confidence in the crypto industry.
Key Economic Calendar (Weekly)
The economic calendar is light in the week ahead with data on initial jobless claims due to be released on Thursday after last week’s figures pointed to some cooling in the labor market though conditions remain tight.
Powell is due to testify before Congress in hearings on Wednesday and is expected to reiterate the Fed’s commitment to curbing inflation, which is running at the highest in 40 years.
All times listed are EDT
Wednesday
10:00: US – Fed Chair Powell Testifies
Thursday
8:30: US – Initial Jobless Claims: anticipated to dip to 225K from 229K.
11:00 – US – Crude Oil Inventories: previously printed at 1.956M bbl.
Top 3 Leading and Lagging Sectors (Weekly)
All 11 S&P 500 sectors lost ground with declines ranging from -4.0% (consumer staples) to -15.2% (energy).
The energy sector, which is the best-performing sector this year (+20.5%), was arguably the benchmark for the recession trade that dominated the stock market. It broke down on momentum-driven selling interest that was precipitated by concerns about a major slowdown in global demand in coming months as world economies feel the pinch of rapidly rising interest rates.
Market Breath (Weekly)
% of Stocks Above 50 DMA = 14.65% (-45.27%)
% of Stocks Above 200 DMA = 15.73% (-30.77%)
Market Technicals – (S&P 500, NASDAQ, Bitcoin, Bonds & Credit Spread, NAAIM)
$SPX (S&P 500) vs $RSP (S&P 500 Equal Weight) – A New 52 Weeks Low
The S&P 500 ($SPX) fell further by -5.79% for the week, breaking down from the 3,810 support level highlighted last week. $SPX is now trading at its 52-weeks low.
The breakage, though, had to do with more than just the rate-hike actions from the central banks. It also had to do with liquidity concerns that rocked the cryptocurrency market, earnings concerns that gripped the entire stock market, growth concerns that undercut many commodity prices and drove junk bond spreads to their widest since November 2000, and excessive volatility in the Treasury market that rattled investor confidence.
At the current junction, momentum on $SPX remains lacklustre with major moving averages all been pulled lower for a prolonged decline.
The immediate support to watch for this week is at 3,630 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 -4.90% for the week. The breakdown in $QQQ also see it remaining below its momentums short term moving averages (10 & 20-days). $QQQ remains the weakest major index, trading -31% year-to-date.
The support level to watch for $QQQ this week is at $269, 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 further plunged with -22.69% over the week. $BTCUSD is currently trading at a level last witnessed in December 2020. At the current juncture, the highlighted Bearish Head and Shoulder Pattern remains in play.
The week began on an unnerving note with cryptocurrency prices coming undone on the news that crypto lender Celsius had suspended customer withdrawals and transfers. That drove some panicky selling and fueled angst about forced selling to meet margin calls that persisted all week. Bitcoin started the week just above $25,000.00. As of this writing, it now below $20,000.00.
The level of support to watch for $BTCUSD this week is at $11,600, a major resistance-turned-support level
$PCCE (Put/Call Ratio Equity) & $VIX (Volatility S&P 500) – Reflection of Imminent Major Sell Off Ahead
VIX >30 is assumed to accompany large volatility, resulting from increased uncertainty, risk, and investor fear. VIX <20 generally correspond to stable, stress-free periods in the market. Higher VIX levels equates to more expensive options premium and vice versa for lower VIX level.
The spike level to watch for $PCCE in the last 24 months period is at 1.00. The current reading of 1.237 (+16.70%) implies a probable short term risk-off sentiment of the equity market for the week, along with risk of accelerated selling ahead.
The CBOE Volatility index ($VIX), also known as Wall Street’s fear gauge, also inclined to 31.12 (+12.18%), an elevated level for caution.
The weekly build up in momentum of both $PCCE and $VIX is reflecting a major sell off ahead remains 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 further edge up towards 1.59% (+0.03) as the volatility in the equity market resumes. This is the highest spread level in 15 months.
The 2-yr note yield jumped 14 basis points to 3.18% after moving as high as 3.43% earlier in the week; the 10-yr note yield increased eight basis points to 3.24% after kissing 3.50% earlier in the week
NAAIM Exposure Index 32.18 (-17.82)
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: 32.18.
Top Trading Ideas for the Week
$DQ – Semiconductor Equipment (China)
with many of the china names setting a new 52wks high, $DQ have rallied beyond its 15 months wedge pattern, trading above all KMAs to its rising 10/20 MAs.
what sets $DQ apart from other names is its exponentiated growth in latest pic.twitter.com/XuHbmsSZJc
— Jeff Sun, CFTe (@jeffsuntrading) June 20, 2022
