Bullish Ranging
FOMC Minutes’ Impact
Preface
Last issue we talked about the slowing momentum ahead of an important data week, and sure enough we’ve got some added volatility to go along with that.
Following the long weekend, stocks sold off heavily in the wake of hot PMI numbers. This upside surprise was another road block in the way of the Fed’s disinflation victory lap.
Good news for bulls is that the FOMC minutes maintained dovish overtones, with no surprises in the committee consensus.
Latest Economic Data
US Manufacturing PMI
- 47.8 vs 47.1 consensus and 46.9 prior
US Services PMI
- 50.5 vs 47.2 consensus and 46.8 prior
US Composite PMI
- 50.2 vs 47.5 consensus and 46.8 prior
A reading above 50 shows MoM expansion and below 50 shows contraction. Not only did services PMI climb into expansion territory, but manufacturing PMI also saw a slowing of the downtrend.
Initial jobless claims
192k vs 200k consensus & 195k prior
Q4 GDP
Revised down to 2.7% from 2.9% consensus and 2.9% prior
Consumer spending
Revised down to 1.4% from 2.1% prior
PCE (QoQ)
3.7% vs 3.2% consensus and 4.3% prior
Core PCE (QoQ)
4.3% vs 3.9% consensus and 4.7% prior
Data Interpretation
Finally we got some numbers that stocks weren’t able to completely shake off, as further inflation pain and rate hikes become more likely.
The light at the end of the tunnel here is that consumers are finally starting to look less robust, which accounted for most of the lower GDP revision. That makes an argument for a soft landing, which essentially entails the Fed bringing the plane down slowly with 25bps hikes from here on out.
Make no mistake though – we still have January PCE numbers due this morning and Nonfarm Payrolls + CPI coming up in early March.
Quick Takes
In this section I recall some of the interesting tweets I’ve come across throughout the week. Let’s start with a take from Christophe Barraud.
It’s a controversial one, because some contend that corporate earnings forecasters have become more accurate with their estimates. Even so, the steep drop-off shouldn’t be ignored. Perhaps this chart is close to bottoming and turning a corner?
Then we have an interesting chart from Jim Bianco, which shows that Fed funds futures are no longer pricing in a rate cut before the end of the year. Sorry pivot bros.
And a hawkish note to keep in the back pocket. The Chart Store contends that the services component of CPI has no signs of peaking yet. Will this be enough to tip the scales toward a 50bps hike at the next Fed meeting? We’ll keep following the data.
Technical Analysis Corner
BTC 3-Day Chart
It’s time to review my HTF view of BTC after some new developments. Remember last time we observed how this breakout more closely resembles the one in 2015? Well now we have the throwback in place as well.
Ideally, price won’t go back for another test of the downward diagonal. In my view that would significantly reduce the likelihood of continuation higher. I’m looking for consolidation between 21.5-25.2k as a worst case before the next leg up if we are truly macro bullish.
BTC 4H Chart
We are holding key intraday support at 22.7k as price has failed to close below on multiple attempts. With PCE numbers out in the morning this level may come into play again, but watch for the candle close. An aggressive wick could spring it back toward range highs.
Blue shaded areas are support, and acceptance above 25250 sets up for continuation toward 28k.
S&P500 Daily Chart
It’s make or break time for SPY bulls, but I have been talking about this support level for a long time and it’s finally here.
What’s different now? Pundits were bearish the whole way up, and now they’re ultra bearish at support. I don’t know how many times I heard “We’re going back to the lows” today.
In fact the 50/200MA golden cross that’s developed this month is the first since July 2020 and we’re getting our first test of diagonal support + 50MA since the successful breakout.
Closing back below the 200MA (purple) would invalidate this setup, but let’s give the bulls a chance to confirm a reversal.
DXY Daily Chart
The dollar index is still the main concern here as its strength continues. It has found acceptance above my red horizontal and blue diagonal. The prior swing high is still a potential target, but if it continues higher than that I suspect risk assets could get quite messy for a while.
Sponsors Corner
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Jay Charles
Editor in Chief, The Trading Tank.
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