The S&P 500 ($SPX) declined -1.87% for the week, as money continued its outflow from growth stocks and into value stocks. The 10-yr Treasury yield also reached its 2 years high at 1.8%, catalyzed by the December employment report, which depicted tight labor market conditions with a slowdown in hiring and strong wage gains.
The coming week will bring closely followed CPI inflation figures, while Investors will also be on close watch for fresh indications of whether key Federal Reserve officials are leaning toward rates lift-off as soon as the March FOMC meeting,
It also marks the start of Q4 earnings season with several large banks reporting on Friday. Volatility looks set to remain elevated in equities markets after a choppy start to 2022 and Bitcoin remains under pressure.
Here’s what you need to know to start your week.
1. Inflation data
Wednesday’s consumer price inflation data is expected to show headline CPI breaking above 7% year-on-year – rapidly approaching a four-decade high – with the core rate rising well above 5% year-over-year. Producer price inflation data the following day is also expected to show a surge higher.
The inflation numbers will likely underscore why the Fed could start its rate hike cycle as early as March. Adding to the argument for faster tightening is Friday’s jobs report which indicated that the labor market is at or near maximum employment.
While jobs growth underwhelmed in December, the unemployment rate tumbled to a 22-month low, and wages increased solidly.
The inflation data will be followed by reports on December retail sales and industrial production on Friday.
2. Powell testimony
Fed Chair Jerome Powell is due to testify Tuesday before the Senate Banking Committee at a hearing to confirm his nomination to a second four-year term as Fed head while Fed Governor Lael Brainard is to appear before the same committee two days later for a confirmation hearing on her nomination to vice-chair.
Their comments will be closely watched in the wake of last week’s Fed minutes which indicated that a “very tight” job market and elevated inflation might require officials to raise interest rates sooner than expected.
3. Earnings
Earnings season kicks off in earnest in the coming week with investors getting a look at fourth quarter results from several large banks, including JPMorgan Chase ($JPM), Citigroup ($C) and Wells Fargo ($WFC) ahead of the market open on Friday.
Massive profit increases from U.S. companies helped fuel a 27% gain in the S&P 500 in 2021, but companies will likely have a difficult time posting similar numbers for the fourth quarter.
Investors will be eager to hear about inflation, whether companies believe the supply chain crunch that helped drive prices up last year will ease in coming months and forecasts for 2022.
4. Bitcoin
Bitcoin has come under pressure since the start of the new year, falling to its lowest level since late September amid a broader selloff in cryptocurrencies driven by concerns over the prospect of a more hawkish Fed.
The world’s largest cryptocurrency by market value has fallen over 40% since hitting an all-time high of $69,000 in November driven lower by expectations that the U.S. central bank will hike interest rates sooner than expected.
More aggressive policy action by the Fed would sap investor appetite for riskier assets.
Bitcoin was also pressured lower as global computing power of its network dropped sharply last week following the shutdown of Kazakhstan’s internet during an uprising, which hit its rapidly growing cryptocurrency mining industry.
Key Economic Calendar (Weekly)
All times listed are EST
Tuesday
10:00: US – Fed Chair Powell Testifies
Wednesday
8:30: US – Core CPI: seen to remain steady at 0.5% MoM.
Thursday
8:30: US – PPI: likely dropped to 0.4% from 0.8%.
Friday
8:30: US – Core Retail Sales: expected to slip to 0.2% from 0.3%.
8:30: US – Retail Sales: to fall to 0% from 0.3%.
Top 3 Leading and Lagging Sectors (Weekly)
1. $XLE (Energy) +10.52%
2. $XLF (Financial) +5.43%
3. $XLB (Industrial) +0.64%
Benchmark: $SPY -1.87%
1. $XLRE (Real Estate) -4.90%
2. $XLV (Healthcare) -4.64%
3. $XLK (Technology) -4.57%
Market Breath (Weekly)
% of Stocks Above 200 DMA = 44.64% (-2.49%)
% of Stocks Above 50 DMA = 41.91% (+0.07%)
Market Technicals (Rally Cycle Count: Day 14 of 25)
$SPX (S&P 500) vs $RSP (S&P 500 Equal Weight) – (Net High/Low -13)
$SPX declined -1.87%, correcting back to its 50D Moving Average, closing at 4,677 level.
The immediate support to watch for $SPX this week is at 4,660 level, a break of 50MA. The 50MA for $SPX has been a key technical level that has attracted dip-buying efforts since February 2021,
$QQQ (Nasdaq 100) vs $QQQE (Nasdaq 100 Equal Weight)
$QQQE broke its VWAP level highlight last week, and further correction to $81.26. The week’s decline in $QQQE is -4.75%. It is the index that suffered the most severed decline over the week.
The support level to watch for $QQQE remains at $80.80 level. This is a major support level that coincide with its rising 200MA.
$PCCE (Put/Call Ratio Equity) & $VIX (Volatility S&P 500)
The spike level to watch for $PCCE is at 1.00, where the current reading of 0.743 (+15.71%) reflects weakness in the current market environment.
$VIX reading similarly increase to 18.75 (+8.95%) from 17.21 also confirming the market correction we have experienced over the past week.
$IEI/HYG (Credit Spread) – $TNX (10YR Treasury Yield)
Credit Spread remains at 1.48% over the week during which $TNX went up to 1.72% (+17.20%), a 2 years high. The current momentum in $TNX is like to see TNX reaching 1.95% by end of January.
Top Trading Ideas for the week
$SRTS cleared a one year base cleanly with a high tight flag consolidation right now. breakout level at $8.55 will be 52 weeks high.
YoY
Q3 EPS + 110%
Q3 Sales + 241% pic.twitter.com/xZR4WP5Woo— Jeff Sun, CFTe (@jeffsuntrading) January 9, 2022
$XMTR reflects RS since early december (market weakness period). continues ride up its 10MA since 20th dec with U/D Volume ratio at 130%.
currently still below IPO VWAP ($60.18) but with double bottom breakout level at $57.60. the slower price action rides up, VWAP will meet $58 pic.twitter.com/kNWwgpIVPB
— Jeff Sun, CFTe (@jeffsuntrading) January 9, 2022
$MEOH inverse head and shoulder pattern, sitting on a flat 200MA.
price action for past 6 weeks have ranged within $38-$43. a precise break of $43.55 would clear all major MAs has whipsaw it over the past 2 months. will be my second attempt on this base action#swingtrade pic.twitter.com/dNdQPag6Tk
— Jeff Sun, CFTe (@jeffsuntrading) January 5, 2022
Do follow me on twitter for more daily trading ideas.
