The 1-2 punch
Waiting > Moving > Waiting > Moving
The markets continue to oscillate from waiting to moving (read last week’s Waves and Cycles here.)
Monday was spent mostly waiting.
Then the first move exploded higher Tuesday morning, beginning even before the CPI announcement was made. In fact, momentum crested at 8:30 AM.
Then the first punch came in, spilling prices lower into the afternoon, and back to waiting mode.
This morning we worked off Tuesday’s inflation (CPI) report and shifted focus to “Fed Day” and Jerome Powell’s comments.
Today the expected announcement of another 50 bps hike in the Fed Funds rate was confirmed and got things moving once again.
Then? You guessed it. Back to waiting.
The 2:30 press conference was punch #2, moving prices lower again.
The Charts
SPY - Passed two components of the three-part test (the downtrend line, and the 200-day MA) Tuesday and then moved lower on the rate announcement. The medium-term uptrend isn’t dead yet as prices remain above an upward-sloping 21-day EMA and 50-day SMA. The bulls still have not gotten the hoped-for resolution though.
The psychological impact will be a concern now. After several attempts to “pass the test” have been so firmly rejected, will buyers have the confidence to try again?
click to enlarge
QQQ - The two-day slide leaves it just above the 8 and 21-day EMAs. Likewise, no big-picture resolution.
IWM - Still the laggard, this is below the 8/21-day EMAs, but above the 50-day SMA. Again, more work is needed for the bulls.
Two potential bright spots
DXY - The slight bounce intraday today was quickly refuted. The overall downtrend is still in place.
VIX - Massive moves this week and the passing of two binary events sucked a lot of uncertainty out of the equation. Ultimately it’s well below where it finished last week and looks like it’s headed back to the lower boundary of the range.
Revisiting Long Cycles
Last week I was thinking about the longer business cycle and Intermarket analysis. USO was looking vulnerable. And the relationship between stocks SPY, bonds LQD, and commodities GSG had my wheels turning.
Multiple time-frame analysis is always a useful exercise. And the cycles considered here are very long-term in nature. So a monthly chart is probably more beneficial.
For a longer view, and after some discussion with fellow analysts, I extended the chart from weekly to monthly and added a simple trend identifier in the form of the 10-month moving average.
Here’s the updated chart.
If we simply consider a price below the 10-month MA to indicate a downtrend, and the opposite indicative of an uptrend, we can see the stocks and bonds, though close, haven’t made the turn yet.
This chart could also be interpreted to show commodities being closer to a cycle high than a cycle low.
To be continued…
As a reminder that the market doesn’t care what we think, here’s USO doing the opposite of what I labeled as the “higher probability” move.
With the bounce possibility identified, and the lack of demonstrable edge, this was an observation and not a trade. Had it been, several lessons would’ve been presented;
Price/Moving Average extension rules
The tendency toward momentum failure in choppy markets
Often leading to failed breakdowns and breakouts
Reinforcement of proper position sizing and risk management
It is always important to have an idea and plan. Keep these factors in mind as you create yours.
***This is NOT financial advice. 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”) a SEC registered broker/dealer and member of FINRA/SIPC. All trades placed by Mr. Moss are done through T3TG.
Statements in this article represent the opinions of that person only and do not necessarily reflect the opinions of T3TG or any other person associated with T3TG.
It is possible that Mr. Moss may hold an investment position (or may be contemplating holding an investment position) that is inconsistent with the information provided or the opinion being expressed. This may reflect the financial or other circumstances of the individual or it may reflect some other consideration. Readers of this article should take this into account when evaluating the information provided or the opinions being expressed.
All investments are subject to risk of loss, which you should consider in making any investment decisions. Readers of this article should consult with their financial advisors, attorneys, accountants or other qualified investors prior to making any investment decision.
POSITION DISCLOSURE
December 14, 2022 4:15 PM
Long: QQQ, GS1223P350
Short: none
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Ticker, Date, Call/Put, Strike Price
Example: VXX1218C30 = VXX 12/18 Call with a $30 strike