Weekly Preview
FOMC Nothing Burger?
There are two main events this week which can create significant movement in the markets. The first is the FOMC statement & Fed Funds Rate Decision, and the second is Nonfarm Payrolls.
To see where we stand in the overall technical picture, please review Friday’s issue where we dissected the charts along with the sentiment backdrop of the latest inflation and jobs data.
Here’s the calendar snapshot (Source):
Fed Interest Rate Decision
The expectation is for a 25bps Fed Funds rate increase on Wednesday and market is nearly 100% certain of this. Rarely have we seen such a strong consensus, which has allowed the markets to rally into it.
There are two conditions that need to be met for the FOMC meeting to come and go as if nothing happened and for the markets to keep running after Feb 1.
- Fed hikes rate by 25 BPS
- Fed expresses plans to slow down from here
Imo it’s that simple. Any language hinting otherwise in the FOMC statement or Powell’s press conference will throw a damper on things. I’ll be watching and listening like a hawk – no pun intended.
Nonfarm Payrolls
Nonfarm payrolls (NFP) estimates the number of paid employees excluding farm workers, government employees and private household workers in the US. It’s a key economic marker for analysts, investors and policymakers as it reflects the overall strength of the labor market.
To get inflation down to a 2% target, the Fed believes it will need to weaken the labour market temporarily. Time and again, Jerome Powell and other Fed official have expressed concern over the perceived labor market strength.
December NFP came in at 223k, and consensus for January is 185k. In my estimation, anything over 200k may cause the market to sneeze. Pivot watchers want to see this number begin to plummet, and I believe that time is soon.
In reality the headline numbers are impressive, but most of the jobs added are temporary and part-time in nature. And the trend in temporary workers is starting to roll over, as Mish points out…
I’ve been saying it for some time, but unemployment is about to bump up. The Fed will be forced to hit the brakes and hard.
Once the market realizes this, the recession bells will start to go off. Especially with industrial production, housing, retail spending, money supply, the yield curve, and forward earnings all pointing toward one.
If you’ve got a decent job, do everything you can to hang on. If possible, build up some emergency savings. Last thing you want is to eat away at your retirement or long-term savings nest egg. That’s my two cents of advice.
Here’s the 12-month NFP trend. Imo it won’t be long before we see this go negative (Source):
Quick Takes
We got the weekly close I wanted for S&P500 above diagonal resistance and 50MA, but to check my own bull bias, here’s an alternative setup to watch out for. All eyes on taking out 410.
And finally, we haven’t reached extreme greed yet. A reading of 70 implies strength and potential continuation. I think the F&G index is bogus but it’s fun to look at sporadically.
Charts in Focus
ETH 4H
This breakout on ETH is significant, and as long as $1600 is held, my next targets are $1680, $1789.
MANA 12H
MANA was able to push above the daily range and although it’s fighting with some divergences, OBV is ripping higher. I like this as long as $0.76 is maintained on a daily close.
SAND 1D
Similar setup. Should be good as long as $0.76 is maintained on a daily close.
Earnings
It’s the biggest week of earnings season, with Apple, Amazon, Alphabet, Meta, and AMD on tap. Get the popcorn ready! 🍿
If we want this stock market rally to continue we will need to see strength from big tech, so this week is pivotal. Need to be on the alert for low earnings or guidance as warning signals.
See y’all later in the week!
Jay Charles
Editor in Chief, The Trading Tank.
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