Breakouts…Breakouts Everywhere!
What CPI Week Revealed
Preface
In a week where US inflation data disappointed the experts, retail sales came in boiling hot, and manufacturing saw a notable uptick, you’d think the markets would be in the tank. But yet, we soldier on!
Stocks are relatively steady and crypto is trying to break out. Another reminder it’s the charts that we trade, and the data just helps us to make more informed decisions.
On CPI day for example, I watched price action closely as the report came out. There was a pullback into support for BTC and many alts, but the price action wasn’t as severe as expected.
When this happens, prices often go running in the other direction. This case was no disappointment. It happens again and again, and we’re here for it!
Stick around for updated charts at the end of this issue…
Latest Economic Data
US Headline Inflation Rate (CPI YoY)
- 6.4% vs 6.2% consensus and 6.5% prior
The annual inflation rate in the US slowed only slightly to 6.4% in January of 2023 from 6.5% in December, less than market forecasts of 6.2%. Still, it is the lowest reading since October of 2021.
A slowdown was seen in food prices (10.1% vs 10.4%) while cost of used cars and trucks continued to decline (-11.6% vs -8.8%). In contrast, the cost of shelter increased faster (7.9% vs 7.5%) (Source)
US Headline Inflation Rate (CPI MoM)
- 0.5% vs 0.5% consensus and 0.1% prior
Consumer prices in the US increased 0.5% month-over-month in January of 2023, the most in three months, and in line with the market forecast.
The index for shelter was by far the largest contributor (0.7%), accounting for nearly half of the monthly all-items increase followed by food (0.5%), gasoline (2.4%), and natural gas (6.7%) (Source).
US Core Inflation Rate (Core CPI YoY)
- 5.6% vs 5.5% consensus and 5.7% prior
The core consumer price inflation rate in the United States, which excludes volatile items such as food and energy, eased for a fourth consecutive month to 5.6 percent year-on-year in January 2023, the lowest since December 2021 (Source).
US Core Inflation Rate (CPI MoM)
- 0.4% vs 0.4% consensus and 0.4% prior
US core consumer prices, which exclude volatile items such as food and energy, went up by 0.4% from a month earlier in January 2023, the same pace as in the prior month and in line with market estimates (Source).
U.S. Retail Sales (MoM)
- 3.0% vs 1.8% consensus and 1.1% prior
Retail sales in the US unexpectedly jumped 3% month-over-month in January of 2023, the biggest increase since March of 2021 and way above market forecasts of a 1.8% rise. It follows a 1.1% drop in December (Source).
US Manufacturing Production
- 0.3% vs -1% prior (YoY); 1% vs -1.8% prior (MoM)Manufacturing production in the United States moved up 1.0 percent in January 2023 after falling by a revised 1.8 percent in December, beating market expectations of a 0.8 percent increase (Source).
Data Analysis
The latest figures indicate our recent trend of moderating inflation levelled off and started reversing back up in January on the back of increases in food, energy and shelter.
Last month, interest-rate futures market investors expected the Fed would lift rates to around 4.9% in Q1, and subsequently reduce late into the second half. Following Tuesday’s report however, they now expect an increase in the fed-funds rate to around 5.2% by the summer and a hold near that level through the end of the year (per CME group).
This reality of higher for longer creates a significant headwind for risk assets as the year goes on. That being said, we base our trading decisions on what the charts are saying. So let’s take an updated look!
Technical Analysis Corner
BTC Daily Chart
This week we got explosive continuation right into the range high of 25.2k and that is now key resistance holding BTC back from continuation to the 28-32k range. Support levels come in at 22770, 21735, 20675 should we fail to hold 23750.
Once again Birbicator Pro called the top with that strong bearish divergence.
BTC 4H Chart
Zooming in, we can see that the value area high for this range is at 23942. Clearing this level can lead to upward continuation. The main area of support is 22800-23200 and the value area low is 22267.
All of these levels could come into play if the volatility on stocks continues to close out the week.
SPY Daily Chart
After a hot start to the year, the S&P500 has essentially gone nowhere in February. Sometimes boring is good. I have continued to reiterate that I’m bullish as long as 400 area holds.
A higher low puts bulls in position to refuel for a move back up. Recent inflation data has not been favourable toward bulls, but so far we have not seen panic reflected in the chart. Price action is still king.
DXY Daily Chart
The dollar index is breaking out and sending a bit of a warning signal here. Long as this uptrend persists we can expect some weakness in risk assets.
If you enjoyed this issue, check out the previous editions!
Jay Charles
Editor in Chief, The Trading Tank.
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