A surprisingly strong U.S. jobs report last Friday suggested continued strength in the economy with each major indices rose more than 1.0% last week, while oil climbing to 7-year highs and cryptocurrencies back on the upward march are a reminder of the inflation hedge trade. The end result was a +1.5% rise for the S&P 500 on the week, with the Nasdaq up +2.4% and the Dow Jones Industrial Average up +1%.
With rumblings that the Fed might not only hike four times this year, the Consumer Price Index (CPI) report this week will have real weight to further market volatility, amid increasing bets of a more hawkish Fed stance with Chinese traders returning from their long-week holiday.
Many will be watching the Russia-Ukraine conflict as well, with its obvious geopolitical import as well as direct effects on the commodity sector.
Here’s what you need to know to start your week:
1. U.S. CPI Report
January saw the U.S. add 467K jobs, surprising economists and analysts who expected that the Omicron variant disruption might have a deeper impact. It’s a reminder of how much of the U.S. has decided COVID-19 is not a cause of huge concern, and also that the U.S. economy is fairly hot. Thus inflation.
The CPI and Core CPI Report come out Thursday pre-market. Economists expect CPI to come in at a .5% increase month over month and 7.3% year over year, with core CPI (excluding food and energy prices) also expected at .5% month over month and 5.9% year over year. With rumblings that the Fed might not only hike four times this year but also jump straight to a 50 basis points hike in March, this report will have real weight.
2. Earnings read-through part 1 – pandemic related effects
One way to read Meta Platforms’ muted guidance and earnings report was as a new sign that pandemic-related tailwinds are gone for tech companies. Amazon’s rebound after its reports was as much about the worst already being priced into the shares, as the company took a big hit in Q3.
We’ll continue to get read-throughs on both “Covid plays” and “reopen plays” this week, with the following companies reporting:
- Simon Property Group ($SPG)
- Pfizer ($PFE)
- Peloton ($PTON)
- Lyft ($LYFT)
- Disney ($DIS)
- Uber ($UBER)
- Twitter ($TWTR)
- AstraZeneca ($AZN)
- Cloudflare ($NET)
- Expedia ($EXPE)
Peloton’s report will get extra attention with news breaking of Amazon’s purported interest in the fitness equipment and subscription company, which is at least a sign that Peloton could be up for sale. Uber will also have an investor day on Thursday morning following its report, which will be closely watched.
3. Earnings read-through part 2 – inflation effects
The other big story to watch across this earnings season is the impact of inflation on different companies. We have companies from the materials sector, consumer goods and food, and healthcare reporting, all of which should add to the picture of how widespread inflation is and whether there are signs of easing ahead, whether supply-chain related or otherwise.
This batch of companies includes:
- Tyson Foods ($TSN)
- Sysco ($SYY)
- Centene ($CNC)
- CVS Health ($CVS)
- ArcelorMittal ($MT)
- Coca-Cola ($KO)
- PepsiCo ($PEP)
- Cleveland-Cliffs ($CLF)
- Enbridge ($ENB)
4. Russia/Ukraine developments
Diplomatic efforts and military maneuvering is set to continue between Russia and Ukraine as well as Western countries. Reuters reports that French President Emmanuel Macron is set to visit Russia to speak with President Vladimir Putin Monday and Tuesday, while the Washington Post reports that U.S. President Joe Biden is scheduled to meet with German Chancellor Olaf Scholz on Monday. This comes after reports of a briefing given by the Biden administration to U.S. congress officials that Russia has built up 70% of the necessary force to invade Ukraine entirely, though the briefing did not affirm that would be Russia’s final decision.
The stakes for Ukraine and then Russia and the broader geopolitical landscape are significant, and from the market perspective, the price of Oil – which crossed the $90/barrier for the first time since 2014 as it continues its recent ascent – and natural gas will be in focus and susceptible to any resolution or escalation.
Key Economic Calendar (Weekly)
All times listed are EST
Tuesday
8:30: US – Trade Balance: seen to slump to -83.00B from -80.20B previously.
Wednesday
10:30: US – Crude Oil Inventories: expected to show a build of 1.525M from the previous -1.046M drawdown.
Thursday
8:30: US – Core CPI: predicted to edge lower to 0.5% from 0.6% MoM.
8:30: US – Initial Jobless Claims: to print lower, at 228K after last week’s 238K reading.
Top 3 Leading and Lagging Sectors (Weekly)
Eight of the 11 S&P 500 sectors closed in positive territory, paced by the energy (+4.9%), consumer discretionary (+3.5%), and financials (+3.5%) sectors with impressive gains. The materials (-0.1%), real estate (-0.2%), and communication services (-1.5%) sectors ended the week with modest losses.
1. $XLE (Energy) +4.98%
2. $XLF (Financial)+3.56%
3. $XLY (Consumer Discretionary) +3.54%
Benchmark: $SPY +1.53%
1. $XLC (Communication Services) -1.58%
2. $XLRE (Real Estate) -0.28%
3. $XLB (Materials) -0.12%
Market Breath (Weekly)
% of Stocks Above 200 DMA = 32.32% (+8.46%)
% of Stocks Above 50 DMA = 29.99% (+31.08%)
Market Technicals (Rally Cycle Count: Day 6)
$SPX (S&P 500) vs $RSP (S&P 500 Equal Weight) – (Net High/Low -121)
The market had plenty going for it last week, including month-end rebalancing activity, first-of-the-month inflows, a fear of missing out on further rebound gains, and better than expected (and feared) earnings reports. Each of the major indices rose more than 1.0% last week, as the market continued to stabilize from an oversold condition despite increased rate-hike expectations.
$SPX ended the market week on another positive week gaining +1.55%, improving its technical posture and negating a potential Bearish Flag pattern. $SPX have now reclaimed its 200-day moving average, along with its equal weight ETF ($RSP). Further deceleration of deterioration on market technical is also witnessed on US Market Net Highs/Lows, with only -121 companies for the week (comparing to -635 companies on previous week).
It is worth to remain cautious as $SPX was resisted by a Downtrend Line coinciding with a all time high VWAP resistance (4,580) during the week. Additionally, there was a failed attempt to reclaim a previous high VWAP resistance (4,543) on Friday. Both VWAP levels was rejected to a declining 20-day and 50-day moving average.
The immediate support to watch for $SPX this week is at 4,440 level, its 200-day moving average.
$QQQ (Nasdaq 100) vs $QQQE (Nasdaq 100 Equal Weight)
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 gained +1.77% last week, off its intraweek high of +4.73%. This subdued rally remains to be technically driven off its high volume action at its pivot off its 350 level, a fear of missing out on further rebound gains. $QQQE continues to be playing out its bearish inverse head and shoulder pattern, with rejection observed on its declining 20-day moving average, coinciding with ATH VWAP resistance during the week.
Both $QQQ and $QQQE remains below their major moving averages (10/20/50/200).
The support level to watch for $QQQ is at the re-test of $349.50 level.
$BTCUSD (Bitcoin / USD) – Cryptocurrencies revving up again
Cryptocurrencies were an asset class that appreciated the turn of the calendar page. After losing nearly 20% in January, Bitcoin ($BTCUSD) has risen nearly 8% in February, and Ethereum ($ETHUSD) has risen nearly 12%.
Bitcoin ($BTCUSD) have successfully negated the bearish flag pattern that was highlighted in the previous week, added with a bullish crossover of rising 10-day moving average against its 20-day moving average during the rally. At the current juncture, $BTCUSD is trading along its declining 50-day moving average.
As ever, the question is what will be the incremental driver of price performance in the sector. The rebound has timed pretty closely with the Nasdaq’s (at least temporary) bottom from the January correction, suggesting that crypto performance is just an output of risk appetite. With another part of the rationale for bitcoin, at least, being its use as an inflation hedge, the CPI report may have be the next catalyst, for higher or for lower.
The key support level for $BTCUSD is at $36,200, a resumption of its midterm down trending channel.
$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 0.808 (-15.20%) affirmed the bottom of the sell off we witnessed in the major market indexes during the month of January. $VIX have also restrained to of 23.20 (-16.09%), but it remains at an elevated level for risk of a further sell off.
$IEI/HYG (Credit Spread) – $TNX (10YR Treasury Yield)
Credit Spread remains at 1.50% over the week. Interestingly, $TNX have edged up to 1.931% (+0.148) during a broad market rally week.
A market may be due for a further wash-out with $TNX edging up near to 1.95%, the highest pre-pandemic level.
NAAIM Exposure Index – 62.54 (+9.15)
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.
This week’s NAAIM Exposure Index number is: 62.54, up from 53.39.
Top Trading Ideas for the Week
after a successful breakout off its base pivot at $55.50, $BROS is now a developing a bullish pennant pattern setting up momentum for a continuation breakout.
looking to add at $58 pic.twitter.com/43TCVWusgl
— Jeff Sun, CFTe (IFTA) (@jeffsuntrading) February 7, 2022
$BILL witnessed its highest wkly volume since IPO, with a gain of +37.85% triggered by earnings beat of +100% on EPS ($0) and +19.39% on sales ($131.1mil)$BILL have broken out of a 3 months DTL from ATH, trading above all MA. Currently last resistance at Q3 ER VWAP $233 pic.twitter.com/FIQmLpS1eH
— Jeff Sun, CFTe (IFTA) (@jeffsuntrading) February 7, 2022
coal names like $METC and $ARCH all squat on 2nd half session but remains above VWAP support.
still have my $14.90 alert on $METC since mid dec’21. very resilient on weekly pic.twitter.com/TeEd2tjosa
— Jeff Sun, CFTe (IFTA) (@jeffsuntrading) February 4, 2022
