Market analysis for Jan. 13th, 2024

Welcome back traders to, what seems to be a rarity lately, a full trading week. We had a really nice finish to our week last Friday. Our MSTR 0DTE that we had rolled from the previous week didn't hit the profit zone so we'll continue working that this week but overall it was a nice day or results. See our numbers below: 

This week it's all about inflation. We've got PPI then CPI numbers coming out Tues. and Weds. which should be the main drivers of market movement. 

​March S&P 500 E-Mini futures (ESH25) are down -0.83%, and March Nasdaq 100 E-Mini futures (NQH25) are down -1.26% this morning while Treasury yields continued to rise as investors trimmed bets on Federal Reserve interest rate cuts following Friday’s strong payroll data.
Market participants now look ahead to key U.S. inflation data, remarks from Federal Reserve officials, and the start of the fourth-quarter earnings season later in the week.
In Friday’s trading session, Wall Street’s major equity averages closed sharply lower, with the benchmark S&P 500 and blue-chip Dow dropping to 2-month lows and the tech-heavy Nasdaq 100 falling to a 6-week low. Constellation Brands (STZ) tumbled over -17% and was the top percentage loser on the S&P 500 after the company posted downbeat FQ3 results and provided a soft FY25 comparable EPS forecast. Also, ON Semiconductor (ON) slumped more than -7% and was the top percentage loser on the Nasdaq 100 after Truist Securities downgraded the stock to Hold from Buy. In addition, Advanced Micro Devices (AMD) slid over -4% after Goldman Sachs downgraded the stock to Neutral from Buy. On the bullish side, Walgreens Boots Alliance (WBA) soared more than +27% and was the top percentage gainer on the S&P 500 after reporting better-than-expected FQ1 results.
The U.S. Labor Department’s report on Friday showed that nonfarm payrolls jumped by 256K in December, topping the consensus estimate of 164K. Also, the U.S. December unemployment rate unexpectedly ticked down to 4.1%, stronger than expectations of no change at 4.2%. In addition, the University of Michigan’s U.S. consumer sentiment index unexpectedly fell to 73.2 in January, weaker than expectations of no change at 74.0. At the same time, U.S. average hourly earnings came in at +0.3% m/m and +3.9% y/y in December, compared to expectations of +0.3% m/m and +4.0% y/y. 
“The surprisingly strong jobs report certainly isn’t going to make the Fed less hawkish,” said Ellen Zentner at Morgan Stanley Wealth Management. “All eyes will now turn to [this week’s] inflation data, but even a downside surprise in those numbers probably won’t be enough to get the Fed to cut rates any time soon.”
Meanwhile, U.S. rate futures have priced in a 97.3% chance of no rate change and a 2.7% chance of a 25 basis point rate cut at the conclusion of the Fed’s January meeting. The strong U.S. jobs report led traders to reduce their bets on Fed rate cuts to less than 30 basis points by December this year.
The fourth-quarter earnings season kicks off this week, with big banks such as JPMorgan Chase (JPM), Wells Fargo (WFC), Goldman Sachs (GS), and Citigroup (C) set to release their earnings reports on Wednesday, followed by Bank of America (BAC) and Morgan Stanley (MS) on Thursday. UnitedHealth (UNH), Taiwan Semiconductor Manufacturing Company (TSM), and Schlumberger (SLB) are among other major names scheduled to deliver quarterly updates during the week. 
On the economic data front, the U.S. consumer inflation report for December will be the main highlight this week. Also, market watchers will be keeping an eye on other economic data releases, including the U.S. PPI, the Core PPI, Retail Sales, Core Retail Sales, the Philadelphia Fed Manufacturing Index, the NY Empire State Manufacturing Index, Crude Oil Inventories, the Export Price Index, the Import Price Index, Initial Jobless Claims, Business Inventories, Building Permits (preliminary), Housing Starts, Industrial Production, and Manufacturing Production.
In addition, Fed officials may provide insights on the monetary policy outlook before the blackout period preceding the late-January meeting. Kansas City Fed President Jeffrey Schmid, New York Fed President John Williams, Richmond Fed President Thomas Barkin, Minneapolis Fed President Neel Kashkari, and Chicago Fed President Austan Goolsbee will be making appearances throughout the week.
The Fed will also release its Beige Book survey of regional business contacts this week, which provides an update on economic conditions in each of the 12 Fed districts. The Beige Book is published two weeks before each meeting of the policy-setting Federal Open Market Committee.
The U.S. economic data slate is mainly empty on Monday.
In the bond market, the yield on the benchmark 10-year U.S. Treasury note is at 4.795%, up +0.44%.

Let's take a look at the state of the markets.
​The SPY emerged as the strongest among the major indexes this week, closing at $580.49 (-1.92%) and settling at the lower boundary of its falling wedge. Should the price move lower in the coming week, the anchored VWAP from the August 5th low, along with the largest volume node within this range, sits just below as a critical support level to watch.

​While QQQ experienced a larger decline than the SPY this week, it maintains the most constructive technical setup, closing just above the lower boundary of its descending channel at $507.19 (-2.20%). Should the price break below the channel in the coming sessions, the anchored VWAP from August 5th, currently positioned at $489.57, will serve as a critical support level.

​IWM stood out as the weakest among the major indexes, decisively breaking down from its ascending channel to close at $216.83 (-3.41%). After attempting to hold the August 5th anchored VWAP, this critical level was definitively breached on Thursday. With a significant volume shelf positioned just above the current price, any future strength is likely to face considerable resistance at that level, around $221.

With all the weakness we are seeing, the I.V. is still too low (IMHO) for the normal weekly credit trades we generally put on. I'd like to see it consistently up above 18+.

Let's take a look at the market technicals. No big surprise here. Technicals are flashing bearish.

Let's look at the overall health of the major indices. We've had a "line in the sand" drawn for some time. We broke below that on IWM Friday and the other indices are sitting right on top of it. We aren't in a bear market...yet, but if we lose these levels it certainly looks possible.

My lean of bias today: I'm neutral. Futures have trended down all night and are still down as I type but starting to move back up. The market doesn't have any major news catalysts today and I believe it's waiting for the two big inflation shoes to drop on Tues. and Weds. with PPI then CPI. 

​Current systematic equity positioning is at the 90th percentile, indicating high equity exposure. This could result in limited upside potential, elevated risk levels, and an increased likelihood of market reversal

If $IWM loses 216 this week.. game over for bulls 200ema re test + uptrend support retest Not looking good for bulls if we do not reclaim now

​US stocks are extremely expensive, and guess what? The great majority believes the stock market will be up in a year. What a terrible combination. The last time we had exactly the same combination? It was right before the dot-com bubble burst.

Spread between S&P 500’s forward earnings yield and 10y Treasury yield has reached new 23-year low. At some point I want to get long the 10yr. but when?

Trade docket today: A whole new batch of pairs trades. ALTR, ASUR, FTAI, CRGY, SUM, SKIL, CTGO, GCBC, ICFI, PACS, QTTB, TREE. We locked in profit last night on /NG and are working new positions today. /ES Thetafairy is still working and not quite to the profit zone. BTC long swing trade started, LEVI? and MSTR for our main, longer term trade this week and 1HTE and 0DTE's. 

Let's take a look at our intra-day levels today:
/ES: There are several ways you can look at /ES. One view is that, for the first time during this current selloff, we are moving into an oversold technical situation AND, we are sitting on some substantive support. The other view, of course, is that we may lose this level and then there is nothing but downside coming. I don't think it's worth even taking a stab at guessing until Weds. after we've gotten PPI and CPI numbers. Current resistance is all the way up at 5925 with support at a close 5808.

/NQ: Similar situation. Very close to a key support level. Resistance is now at 21,119 with support at a very close 20,693.

BTC: We started a bullish swing trade last night on Bitcoin and may DCA some more into it today. Resistance is 94,262 with support at 90,310.

Let's look at the expected moves for the week: 
1.7% expected move in the SPY.

QQQ's lookinf for a 2.2% move.

I look forward to seeing you all in the live trading room this morning. We are already off to a nice start with my net liq up $1,475 dollars on the Nat gas trade and Theta fairy getting clost to a take profit.