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NASDAQ-Feb 2024 3 Days remaining!Nasdaq seems on a fast track to close Feb 2024 And still a lot can happen in 3 days, which is the remaining time left to close the month. One key point to make: While Price continues to deliver within Bullish structure. Weekly Price has been unable to close above 18071. Current momentum is expected to continue to push price higher, but noting price's inability to close a weekly candle above this price area will open the possibility of repricing down. It is what it is till its not Price is expected to continue its up-close trend until it shows clear indication of weakness. Looking for a possible Bearish Mon-Tues structure, setting the stage for Bullish continuation Wed-Thu.
CME_MINI:NQ1!Long
by JP_Tru
BULLISH SETUP ON HY-IG SPREAD EMERGING. (BEARISH EQUITIES)Back in November of 2022 I wrote about using the HY-IG spread as a potential indicator of 'risk on' vs. 'risk off' sentiment and I will insert that below for readers trying to understand how this spread differential can be utilized. Subsequently I will explain what I currently see emerging on the above chart with the addition of both the RSI and correlation indicators to provide a more robust and predictive analysis than using the HY-IG options adjusted spread alone. Written November 2022 - 'When the spread between High-Yield (HY) debt and Investment Grade (IG) debt contracts or expands, this can be perceived as the market demanding more or less compensation for the risk it perceives to be present in owning the HY debt against the IG corporate debt. (HY-IG) = Risk On/Risk Off market sentiment. Generally speaking HY debt a.k.a. Junk Debt, is considered more risky than IG debt. Because of this increased risk, the market demands a higher yield for taking on HY debt, also known as a ‘risk premium’ or ‘premium’ over the alternative investment opportunities the market provides. This yield premium on HY/JunkBonds can be viewed as ‘extra incentive’ for bids to take on the ‘riskier debt’. When this spread (white) contracts, we can see that the market (yellow) has a tendency to go up (risk on) and when the spread (white) expands we can see the market (white) has a tendency to go down (risk off). This is only one of many indicators I use to gauge ‘market risk sentiment’ and I thought I would share it.' (I have included the link to this piece for reference at the bottom of the page and please excuse the extra charting as I was new to the platform at the time and included the second chart and indicators, but the words remain the same.) Now that the fundamental use case of the HY-IG spread is explained we can dive in to the current situation. As we can see the HY-IG spread called the late October2023 bottom in the AMEX:SPY (orange), as the spread peaked, the broader equity markets found their bottom. This is not always as direct and their is often a bit of a latency where equities will begin to trend upward before the spread peaks due to the forward looking nature of equity markets, however in October of 2023 the spread nailed the bottom. As of today, February 27th, 2024, the HY-IG spread has made a 'lower low' down to 2.27 which gives us a bullish price to RSI divergence on the HY-IG options adjusted spread. The HY-IG spread has made a 'lower low' while the RSI is still printing 'higher lows'. In this particular instance, a bullish divergence on the HY-IG spread could signal a bearish sentiment for broader equity markets ( AMEX:SPY ) at some point over the next 4 to 6 weeks which is the normal time latency between a peak or trough in the options adjusted spread and the time it takes to show up in the price action of equity markets. This divergence theory would be invalidated with an RSI reading below 25 by the HY-IG spread. A reading below 25 would make a lower low on the RSI and would invalidate any divergence. Finally we can look at the correlation (bottom indicator) and see that HY-IG is inversely correlated to the broader equity markets as represented by AMEX:SPY at (-0.92) over the last twenty trading days and has maintained a relatively consistent and significant inverse correlation to AMEX:SPY over the majority of the last year. While I did not include the tech laden NASDAQ:QQQ on the chart, the inverse correlation is still very significant at (-0.87) at the time I am writing this article. This assumes 'corollary significance' is achieved at a greater than or equal to (0.62) level. Given the further contraction in the options adjusted spread down to the 2.27 level, its possible we have a bit more upside room to run in equities, however, assuming the RSI divergence holds with 'higher lows', it's unlikely that we don't see a move to the upside in the HY-IG spread over the next 4 to 6 weeks, which is generally a bearish signal for equities markets. I hope you enjoyed this piece and I welcome any feedback or suggestions you might have so that I might improve further articles. Thank you for reading and happy trading!
FRED:BAMLH0A0HYM2Long
by The_Firewalker
1
As Inflation Retreats, How Will Equities Perform in 2024?During the 1990s and again in the 2010s, equity and bond investors celebrated a goldilocks economy. GDP and employment growth were solid and core inflation remained comfortably around 2% per year despite increasingly tight labor markets. That scenario was occasionally interrupted, notably by the tech wreck recession in 2001, the 2008 global financial crisis, and most recently by the pandemic-era surge in inflation. But by late 2023, inflation appeared to be coming down globally. Comparing the annualized inflation rates during the six months from December 2022 to May 2023, and the six months from June to November 2023, inflation rates have fallen sharply in every major economy (Figure 1). Figure 1: Core inflation rates are falling rapidly worldwide Source: Bloomberg Professional (CPI XYOY, CACPTYOY, UKHCA9IC, CPIEXEMUY, JPCNEFEY, ACPMXVLY, NOCPULLY, CPEXSEYY, SZEXIYOY, NZCPIYOY) Granted, things still don’t feel great for consumers, who appear to be less sensitive to the rate of change in prices than they are to level of prices which remain high and are still climbing, albeit at a slower pace than before. Nevertheless, it appears that the main drivers of inflation -- supply chain disruptions (Figure 2) and surging government spending (Figure 3) -- subsided long ago. Supply chain disruptions sent the prices of manufactured goods soaring beginning in late 2020. Depressed pandemic-era services prices initially masked the surge in inflation, but services prices began soaring as the world reopened in 2021 and 2022 driven by surging government spending, which created new demand but no new supply of goods and services. Since then, however, supply chain disruptions have faded despite Russia’s invasion of Ukraine, and with little impact thus far from the conflict between Israel and Hamas. Moreover, government spending has rapidly contracted as pandemic-era support programs have expired despite some increases in spending related to infrastructure and the military. As such, not even the low levels of unemployment prevailing in Europe, U.S. and elsewhere appear to be sustaining the rates of inflation witnessed in 2021 and 2022. Figure 2: Supply chain disruptions drove inflation in manufactured goods in 2020 and 2021. Source: Bloomberg Professional (WCIDLASH and WDCISHLA) Figure 3: U.S. government spending has fallen from 35% to 22.6% of GDP Source: Bloomberg Professional (FFSTCORP, FFSTIND, FFSTEMPL, FFSTEXC, FFSTEST, FFSTCUST, FFSTOTHR, GDP CUR$, FDSSD), CME Group Economic Research Calculations U.S. core CPI is still running at 4% year on year but its annualized pace slowed to 2.9%. What’s more is that in the U.S. most of the increase in CPI has come from one component: owners’ equivalent rent, which imputes a rent that homeowners theoretically pay themselves based off actual rents on nearby properties. Outside of owners’ equivalent rent, inflation in the U.S. is back to 2%, its pre-pandemic norm (Figure 4). Figure 4: U.S. inflation is much lower when excluding home rental Source: Bureau of Labor Statistics, Bloomberg Professional (CPI YoY and CPI XYOY) Moreover, inflation in China has been running close to zero in recent months and has sometimes even shown year-on-year declines. In China, real estate grew to be as much as 28% of GDP, and the sector is now rapidly contracting. China’s year-on-year pace of growth for 2023 looks solid at around 5%, but that’s not too impressive given than the year-on-year growth rate compares to 2022, when the country spent much of the year in COVID lockdowns. By the end of 2023, China’s manufacturing and services sectors were both in a mild contraction, according to the country’s purchasing manager index data. If growth doesn’t improve in 2024, China may export deflationary pressures to the rest of the world. That doesn’t mean that the are no upward risks to prices. If the Israel-Hamas war broadens and interrupts oil supplies through the Suez Canal, that could reignite inflation. Moreover, green infrastructure spending, rising military spending, near-shoring as well as demographic trends in places like South Korea, Japan, China and Europe that limit the number of new entrants in the global labor market could potentially keep upward pressure on inflation. For the moment, however, any inflationary impacts from geopolitical or demographic factors appear to be overwhelmed by the usual set of factors keeping inflation contained including technological advancement and large labor cost differentials among nations. So, what does this mean for investors? As we begin 2024, fixed income investors are pricing about 200 basis points (bps) of rate cuts by the Federal Reserve over the next 24 months, and the S&P 500 is trading close to a record high. Be warned, however, interest rate expectations have been extremely volatile over the past 12 months, oscillating between expecting rate hikes to rate cuts by as many as 200 bps or more (Figure 5). If we continue to see strong employment and consumer spending numbers combined with weakening inflation numbers, this may keep rate expectations caught in a volatile crosscurrent. Figure 5: Investors price steep Fed cuts but rate expectations are extremely volatile Source: Bloomberg Professional (FDTRMID, FFZ15...FFZ25), CME Economic Research Calculations Moreover, while equities did well in 2023, their rally was narrow, driven by only a handful of large tech and consumer discretionary stocks, while most other stocks including small caps were largely left behind. Finally, the stock market itself isn’t cheap. The S&P 500 is trading at 23.37x earnings and the Nasdaq 100 at 59x earnings. As a percentage of GDP, the S&P 500’s market is still close to historic highs. Finally, even with 2023’s rally, the indexes are trading at basically the same levels at which they ended 2021 (Figure 6). Part of the reason stocks did so well in the 1990s and 2010s is that they started out those decades cheap. The same cannot be said of the starting values for 2024 (Figure 7). Figure 6: Nasdaq and S&P 500 are near end of 2021 levels but the Russell 2000 lags behind Source: Bloomberg Professional (SPX, NDX and RTY) Figure 7: Going into 2024, equities aren’t cheap like they were in 1994 or 2014 Source: Bloomberg Professional (SPX, GDP CUR$, USGG10YR). If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com By Erik Norland, Executive Director and Senior Economist, CME Group *CME Group futures are not suitable for all investors and involve the risk of loss. Copyright © 2023 CME Group Inc. **All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.
CME_MINI:ES1!Education
by CME_Group
Bullish Dollar=Bearish EquitiesDXY oct 23, 2023 While many are expecting a more pronounced decline of DXY I am actually expecting more upside. Here is why: - Will start with a current price position from the monthly and will travel on to smaller timeframes as we move along. - Monthly - On the monthly DXY has broken out of a Bullish Flag structure it had formed from Dec 22- Aug 23 - Showing an energetic displacement upwards in the month of September and closing above Nov 22 lows - Why is this important at least in the Monthly timeframe? This is important since this month we have not seen any attempt to rebalance to the downside. You would probably say that the month of October is not over yet, and you are right. So we wait to see if Dollar has any intention of rebalancing tot he downside. Until it closes the Month we will continue on lower timeframes to see what we find - Weekly - We are currently on the third week of October 23. - So far we have come close to Sep 23 lows but have not breached it. - In order to consider a Bearish trend we need to see Higher Lows and Lower Lows. - We have witnessed a couple of Higher Lows without producing any Lower Lows. - Last week we have a Higher Low to be exact. Lets continue on lower timeframes - Daily - Here we start seeing a clearer picture of current movement and direction at least. - On the Daily it shows the considerable displacement made by DXY on Oct 12, 23 - Also the follow up consolidation above this displacement area. - What do we know about this consolidation? - They have created lower lows via wicks yet all of the candles bodies have remained above 105.780 - This is important because it shows price inability or unwillingness to go lower. - This indicates to me further upside for Dollar (DXY What does that mean and why am I looking at DXY when I trade Futures (ES, NQ, GC, YM)? The US dollar is inversely correlated to the tickers mentioned above. Meaning that a Bullish Dollar = Bearish Equities. Also Bullish Dollar = Bearish all its inversely correlated pairs like the EUR/USD This is why I place so much importance on the direction of DXY (US dollar) even tho I do not like to use indicators it does not mean I won’t collect data from different sources in order to get confirmation. And one of the most reliable sources of directional data that I have come to rely on in my trading career has been DXY.
CAPITALCOM:DXYLong
by JP_Tru
DXY with a brief consolidation. What is next?We witnessed DXY tap the weekly Volume Gap it had towards the downside. and immediately spring up with an internal market structure shift. is it enough? Price is consolidating here in this area and tho it might seem that further downside is in play we must tread carefully since there are looming wars and conflicts around the world. what does this mean for DXY? The US Dollar being the current International currency in times of turmoil, most flock towards its perceived safety. Do not be surprised if out of nowhere Dollar springs up. Just keep a close eye since this will affect currency pairs and equities alike.
CAPITALCOM:DXY
by JP_Tru