Data Dependance Continues
Monday Market Update - February 5, 2024
Jerome Powell was interviewed on 60 Minutes yesterday evening, where he reiterated the ‘data-dependant’ stance of the Federal Reserve Open Market Committee. His comments were, in typical fashion, balanced and reserved.
However, he did say that the FOMC is relatively pleased with inflation and the economy's strength. Then he added that there could be rate cuts in 2024, but they will be careful not to do so too quickly.
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Like Wednesday, after the FOMC meeting press release, the initial market response was lower.
Futures dropped during the TV segment, followed by a selloff this morning, accompanied by a sharp spike in the US Dollar. But as we’ve seen many times lately, the selloff led to a strong recovery.
That’s typical bull market action. But can it hold?
Let’s go to the charts.
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SPY logged an inside day and managed to close above the recent pivot high. RSI is 65, not stretched, and the 8-day MA is close by, so the index doesn’t appear to be extended.
QQQ opened and closed in the upper portion of Friday’s range and just below the pivot high. It is not terribly extended from a technical view - like SPY RSI is below 70 and it touched its 8-day MA today.
IWM put in a hammer candle on its 50-day MA. The lower action has this index close to testing a key anchored VWAP again. It’s not exactly damaged, but the failed breakout and continued inability to move above the $200 area are problem areas.
DIA is] moving more smoothly than the other indexes and closed on its 8-day MA. The uptrend remains firmly in place at this time.
TLT is another red flag today, adding to the cautious signal from IWM. Moving back underneath all the key moving averages so quickly is not what we want to see here.
DXY is the major issue. It’s been noted here time and again that stocks will have a hard time going up if the US Dollar is doing the same. Just last week, this looked to be at risk of breaking down. That has given way to a sharp reversal and a strengthened and renewed headwind for stocks.
BTCUSD is sleepy and listless despite the action in small caps and the Dollar. We can now watch for a sustained move out of the recent range. So far, every attempt has been quickly reversed.
The Closing Bell
February does not have a friendly relationship with stocks. Traders and investors are broadly anticipating some weakness.
So the ‘mixed-bag’ market continues.
Large caps are strong and trending
Small caps are choppy and sending caution signals
The Dollar and Interest Rates aren’t terrible, but they aren’t helping either
Stay vigilant, manage risk, and be patient while looking for opportunities. That’s my playbook, at least, for the month of February.
For more discussion on small-caps, interest rates, and the effects on stocks, listen to my conversation last week with Michael Gayed of The Lead-Lag Report here on YouTube.
And while you’re there, don’t forget to subscribe to the Trading Adventures channel as well.
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***This is NOT financial advice. This is NOT a recommendation to buy, sell, or trade any security. The content presented here is intended for educational purposes only.
Andrew Moss is an associated member of T3 Trading Group, LLC (“T3TG”), an SEC-registered broker/dealer and member of FINRA/SIPC. All trades placed by Mr. Moss are done through T3TG.
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February 5, 2023, 4:00 PM
Long: JPM0209P172.50, META, PLTR0209C17, TSLA0209P180, XLF0209P39
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