Stocks Entering a Bull Market?
GDP + Durable Goods Surprise
Preface
Once again the markets are reacting strongly to data, as a heap of new information was released on Thursday. We still have the all-important PCE and Core PCE report coming up on Friday morning.
I don’t believe the threat of recession has passed, and this ‘encouraging’ data shouldn’t be construed to mean the economy is fixed and we’re back on the upswing. Its proper and intended use is to make short-term investing decisions.
Highlights
- 4Q GDP was up more than expected
- Personal consumption QoQ came in lower than estimated on headline and core
- Jobless claims fell for the fourth straight month
Note these preliminary data readings are subject to change and will be revised over the coming months.
Earlier this week we learned of a continued slide in factory & services productivity, as the PMI numbers showed. Manufacturing employment is also contracting. But what did we learn today? Let’s get right into it!
- US PCE Prices QoQ: 3.2% and 4.3% prior
- US Core PCE Prices QoQ: 3.9% vs 4% consensus and 4.7% prior
- US GDP Growth Rate: 2.9% vs 2.6% consensus and 3.2% prior
- US Initial Jobless Claims: 186K vs 205K consensus and 192K prior
- (The Fed would like this to increase as it’s implied that job losses lower inflation)
- US Continuing Jobless Claims: 1675K vs 1659K consensus and 1655K prior
- US Jobless Claims 4-week Average: 197.5K and 206.75K prior
- US Durable Goods Orders: 5.6% vs 2.5% consensus and -1.7% prior
- (Largest gain since July 2020)
Takeaways
I believe the market reacted positively to the following points, in order of significance:
- The US economy grew at an annualized rate of 2.9% in Q4 2022, following a 3.2% uptick in Q3 and outpacing forecasts of 2.6%.
- Durable Goods Orders was a massive upside swing, ending up at +5.6% from -1.7% prior.
- QoQ PCE showed a significant decline at +3.2% vs +4.3% prior. This quarterly report still takes a back seat to the monthly report out Friday.
- US jobless claims 186K vs 205K evidence a tight labour market in spite of the Fed’s actions, which increases the perceived chances of a soft landing.
- Consumer spending came in light, at 2.1% vs 2.3% prior. That’s a good sign on the inflation front.
Keep in mind these estimates are based on source data that are incomplete and/or subject to revision by the source agencies in coming months.
Charts
US GDP Growth Rate 3-Year Chart (Source)
US Durable Goods Orders Yearly Chart (Source)
US PCE Prices QoQ 3-Year chart (Source)
US Initial Jobless Claims 3-Month chart (Source)
Quick Takes
In this section of the newsletter, I like to review a few of tweets that stood out during the week.
Although I have been expecting unemployment to start ticking upward sometime in Q1, this relationship with new home supply is something I hadn’t considered before.
Always be learning from the experts.
This chart has been making its way around Twitter and Puru Saxena has been posting some great takes. Recommended.
Technical Analysis Corner
BTC Weekly Chart
Here’s a little bit of a different approach. I’m not much into fractals, but I do notice some similarities and differences in the chart each time there’s been a weekly breakout.
What stands out to me here? Imo this time is closer to the 2015 breakout than the one in 2019. The position of the breakdown, subsequent price action, and overhead resistance are all similar.
If following the script, we are approaching the level where it initially rejected and went back down to the diagonal before continuing the run. Something similar could happen here if there is an initial rejection in the 25k neighbourhood.
Something like 25k –> 19k –> 30k+ could be the result. Just in case, I’m going to be very cautious around 25k. The weekly LH resistance is at 25.2k to be more exact.
BTC 12H Chart
The intraday chart paints a horizontal channel with 22.3k support and 23.3k resistance. Price contends with horizontal and diagonal resistance at 23.3, so a reclaim would be a significant victory for bulls. Lose 22.3 and they’ll be looking to set a higher low relative to 20.4.
ETH Daily Chart
ETH perfectly tagged the $1680 swing high and is now consolidating. The next important support is $1480 in case the market decides to pull back more. Ideally it would bounce there instead of testing the red lines.
SPY Weekly Chart
There is no more important chart right now than this one, because a strong stock market generally means a strong crypto market.
After three failed attempts to break the downtrend 1-year old downtrend line, bulls may finally succeed with a close above 402 and set the stage for continuation of this bull run. There’s beautiful confluence with the 50WMA as well.
PCE inflation inflation report will arrive in a few hours. Just as a reminder and heads up! Possible volatility.
Jay Charles
Editor in Chief, The Trading Tank.
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