Pullback Week

Seasonal Pattern Ahead

Preface

You can feel it in the air. The enthusiasm has slowed down this week. All major US stock indexes seem to have hit a wall, with the Dow Jones holding up the strongest. So is it time to finally get more defensive toward the market and take less risk and hold more cash?

Stay tuned as we go through the charts and I offer my commentary shortly.

Economic Calendar

Highlights

  • Consumer Price Index – Thursday
  • Producer Price Index – Friday
  • Michigan Consumer Sentiment – Friday
https://www.fxstreet.com/economic-calendar

Data Preview & Commentary

Consumer Price Index – Thursday

After falling to the lowest annual rate in more than two years in June, CPI inflation is expected to continue the downward trend. Consensus for July is 2.8% for headline inflation vs 3.0% prior, and 4.7% vs 4.8% on core.

If inflation stagnates, that could adversely affect risk assets as odds of another rate hike before EOY would increase. Currently those odds are around 30%.

Producer Price Index – Friday

Inflation has eased as supply chain bottlenecks abate and demand for goods slows in conjunction with higher interest rates. That’s reflected in Producer Price Index, which has absolutely cratered since early-2022.

Some economists claim this data as evidence that the economy has entered a disinflation phase. Either way, producer inflation gets passed onto consumers, so it can act as a leading indicator. We’ll keep an eye on this for signs of a reversal that could signal a slowing in the decline of inflation. Core PPI (YoY) is forecast to decline from 2.4% to 2.1%.

Michigan Consumer Sentiment – Friday

Consumer sentiment has been improving commensurate with the slowdown in inflation and stability in labor markets. Lower-income consumers are not as optimistic according to the survey, however. A pullback below 70 could help risk assets, while a print above 72 could put some pressure on them.

Charts

Bitcoin 4H Chart

It feels redundant bringing this chart up and saying the same things, but there’s virtually nothing going on with BTC. This is just lifeless price action. We’ve entered the range below 29.5k which increases the chances of a 28k test sooner or later. A reclaim of 29.5k could trigger another wick toward 30-30.3k in short order but beware of fugazi movements in this range. Watch the daily closes if looking to play a long off 29.5.

S&P500 Weekly Chart

The S&P500 was looking fantastic on last week’s close above the weekly resistance level, but would need to close above 4545 to repair the current candle. If not, we may see further consolidation toward 4450, 4400, 4328 areas.

I will personally be securing some profits and looking a little more conservative as we head into August. While not the worst month historically, it can tend to be quite choppy as we head toward the period of seasonal weakness in September-early October. I’ve included the Seasonax chart for context.

NQ 4H Chart

The Nasdaq is pretty clean here and we’ve bounced from 15400 support. That needs to hold in the short term for a move back into 15800-16000. The next downside target would be 15100 area. I’m using this as a guide when playing high-flying momentum stocks like Palantir and C3 AI. The trend is your friend, and we’ll continue to milk gains from the big moves we’ve been seeing.

DXY Daily Chart

The dollar index continues to be a problem for Bitcoin as it turned 101.28 into support and is moving into my next level at 102.92. It needs a catalyst such as a good jobs or inflation report to get knocked back down.

Have a great weekend!

Jay Charles

Editor in Chief, The Trading Tank.

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