SPY and ES
Indexes are still sideways on weekly timeframe between 3640 - 3950. Its been 5 weeks for now and i think we may have another week of this chop. Market will mostly break this range after the fed meeting on JUL 27th. If we look at candle stick chart on weekly time frame, we can see that we had alternate red and green weeks and mostly closed below the 50% of the range for the week if its a red week and above 50% of range if its a green week. This week broke that pattern, we had a red week but closed almost at the highs of the range. POC and also is at the highs of the week which is good.
Coming to the Daily profile, Friday's profile is pretty peculiar with single prints above and below the close price. You can see that we have single prints from 3884 - 3900 on the upside and 3820 - 3811 on the downside which were created Friday on the back of strong retail report. Pretty rare that we see single prints both above and below so close to the closing price of the week. Coming to Friday’s profile, its a “P” shaped profile which generally indicates emotional short term trading especially when it occurs in a choppy range based market.
UUP weekly candle looks like a topping candle but i would have been more confident if we got it on DXY too. DXY weekly has back to back top wicks after an extended rally. So, there could definitely be merit for UUP topping candle. As i have been saying for several weeks now, this USD strength is not good for global economies. Leave Asia or Africa, take Europe as an example, EU is a net importer of primary goods. They import most of food, beverages and oil whose prices have been soaring and due to USD strength, their Euro is down in the gutter already. USD/EUR is at parity last week. If this dollar strength persists, EU will have a lot of pressure on its forex reserves and combined with their central bank lagging miles behind the curve on inflation and rate hikes, its a recipe for disaster. US equities cannot stage a consistent rally unless USD comes under control imo.
OIL is another market which needs to hold around this 90-100 range imo. Apart from severe demand destruction, i don't see any other reason why oil should come down drastically especially with Biden’s Saudi trip not yielding much results. If demand destruction occurs, it should only come with recession whether mild recession or strong recession is another debate altogether but we should have something which is again not good for markets.
CPI came in pretty hot last week and everyone was calling for a crash on markets with some people calling 3400, 3500 on ES but i had a different view. I said it will be really difficult for markets to break 3700 and ES held that level like a champ and rallied almost 150points. The main reason for this is oil prices being down a lot from last month and that should help reduce next months CPI reading. Although oil prices are just down to may levels where we had high CPI number too, it is only one piece of the puzzle. Take a look at commodity prices, they are off 21% from highs and still down 10% from may readings too. Shipping prices well off their highs too and these two things combined with oil prices should give us a lower CPI reading imo. Market is always forward looking and i thought if CPI reading was going to come in lower for JUL month, there is no need for markets to panic on last reading. Thats why i was inclined towards that down move being a trap for bears.
Being said that about CPI, now FED needs to calm down and not do 100bps hike on JUL 27th meeting. If indeed CPI is going to come down next month, there is no need for them to be too aggressive with 100bps hike and choke off money supply to the markets. I personally would like 50bps hike in JUL, AUG and SEP rather than than do 75bps now and 25bps in SEP just to give economy a little breathing room to regain its growth but more than likely they might go 75bps in JUL. In any way market is already anticipating 75bps and should be ok with it as long as Powell’s language doesn’t seem too hawkish.
Levels for week:
Bull Bear line - 3870
Below 3870, We can see 3826, 3812, 3776, 3756
Above 3870, we can see 3886, 3900, 3912, 3950.
Coming to the Daily profile, Friday's profile is pretty peculiar with single prints above and below the close price. You can see that we have single prints from 3884 - 3900 on the upside and 3820 - 3811 on the downside which were created Friday on the back of strong retail report. Pretty rare that we see single prints both above and below so close to the closing price of the week. Coming to Friday’s profile, its a “P” shaped profile which generally indicates emotional short term trading especially when it occurs in a choppy range based market.
UUP weekly candle looks like a topping candle but i would have been more confident if we got it on DXY too. DXY weekly has back to back top wicks after an extended rally. So, there could definitely be merit for UUP topping candle. As i have been saying for several weeks now, this USD strength is not good for global economies. Leave Asia or Africa, take Europe as an example, EU is a net importer of primary goods. They import most of food, beverages and oil whose prices have been soaring and due to USD strength, their Euro is down in the gutter already. USD/EUR is at parity last week. If this dollar strength persists, EU will have a lot of pressure on its forex reserves and combined with their central bank lagging miles behind the curve on inflation and rate hikes, its a recipe for disaster. US equities cannot stage a consistent rally unless USD comes under control imo.
OIL is another market which needs to hold around this 90-100 range imo. Apart from severe demand destruction, i don't see any other reason why oil should come down drastically especially with Biden’s Saudi trip not yielding much results. If demand destruction occurs, it should only come with recession whether mild recession or strong recession is another debate altogether but we should have something which is again not good for markets.
CPI came in pretty hot last week and everyone was calling for a crash on markets with some people calling 3400, 3500 on ES but i had a different view. I said it will be really difficult for markets to break 3700 and ES held that level like a champ and rallied almost 150points. The main reason for this is oil prices being down a lot from last month and that should help reduce next months CPI reading. Although oil prices are just down to may levels where we had high CPI number too, it is only one piece of the puzzle. Take a look at commodity prices, they are off 21% from highs and still down 10% from may readings too. Shipping prices well off their highs too and these two things combined with oil prices should give us a lower CPI reading imo. Market is always forward looking and i thought if CPI reading was going to come in lower for JUL month, there is no need for markets to panic on last reading. Thats why i was inclined towards that down move being a trap for bears.
Being said that about CPI, now FED needs to calm down and not do 100bps hike on JUL 27th meeting. If indeed CPI is going to come down next month, there is no need for them to be too aggressive with 100bps hike and choke off money supply to the markets. I personally would like 50bps hike in JUL, AUG and SEP rather than than do 75bps now and 25bps in SEP just to give economy a little breathing room to regain its growth but more than likely they might go 75bps in JUL. In any way market is already anticipating 75bps and should be ok with it as long as Powell’s language doesn’t seem too hawkish.
Levels for week:
Bull Bear line - 3870
Below 3870, We can see 3826, 3812, 3776, 3756
Above 3870, we can see 3886, 3900, 3912, 3950.
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