Weekly Plan 8/7 '22
Last week was excruciatingly hard to trade for trend trading, however most of the weekly action was around my levels shared in my weekly plan last Sunday.
My main expectation for the week was that the market may be sold off at 4170 and could be supported at 4060 and I expected further downside or upside to come once we closed above or below either of these levels. This was exactly the case. The high of the week was almost 4170 and while we did not trade down into 4060, the low of the week was only a few levels above it.
Furthermore, most of the daily auctions were pretty much encapsulated by my levels- on Friday, the low of the day was slightly below 4120 and the high of the session was a little above 4150. This was not a great week for trend trading - but the back and forth was good for balance trading on size.
Some of my other ideas shared and how they fared:
AMD earnings. I expected AMD LIS at 97/99 and expected it to sell down into 88/90 after the earnings. It did sell down immediately after the earnings, however as has been the case with earnings recently on these tech names, it was bought up.
SQ earnings. I expected this stock to sell down after the earnings from 9091 and it crashed into 83 after the earnings. It got a bid on Friday in cash session and eventually closed at 87.
PINS earnings. I wanted this stock to sell off into 15 at 20 however this was not correct and the stock rallied after the earnings.
COIN. I shared COIN 86 LIS at 88 on Thursday and I expected it to rally into 100 again. On Friday it rose, I think about 5% to close near 93/94 dollars.
I was also a bull on Gold from sub 1700 which rallied about a 100 dollars in last 2 weeks. On top of that, I remain a TLT bear, which shed about 4 dollars from my LIS at 120 bucks. Dollar has remained firm from my Line in Sand (LIS) at 104-105 and I think rallied up to 107 this week from the lows.
Chart A: Dollar has remained strong and could make new highs as long as my LIS at 104/105 holds.
One market which had a major move was Crude Oil. The front month of the contract last traded around 88 bucks, I think down about a 1000 ticks from it’s weekly highs.
When I look at both TLT and CL in conjunction I see the market expecting a recession even though a lot of admin officials are denying we are in one or about to be in one.
With energy, specifically Crude Oil (CL), I think downside momentum is strong but I will like to see if some support can come in at 86/87 for a trip back to 93/94. Oil bulls need to take this level back and then I think we can retrace back to 100 dollars. So yes 86 will be the LIS for me on Oil this week and I will be watching it for clues of supporting OrderFlow come in.
Oil I think ignored two key developments which were support to be good for it this week. May be it is the weakness or may be the event could be further out in future.
The hurricane season this year may be worst than ever before per the NOAA.
The Oil pricing increases by the OPEC members.
Chart B: Strong downward momentum in WTI approached key level at $86.
NFP was the key event this week on Friday
It showed a drastic increased in new jobs and wage inflation increased by another half a percent. The earnings on an annualized basis are up 5.2 percent this month. This is a big contrast to some of the other economic indicators like the gas price or inventory in other areas like furniture and electronics which has caused a slow down in those prices. I have been saying this for months now that even if the product inflation cools, the inflation in services is expected to remain high - particularly in high skilled area.
This is a drastic increase , almost 2X, in jobs growth compared to last 3 months - what this means for me is the folks are looking for a 2nd and a 3rd job in many cases, just to pay rent and buy food. The FED needs to be ashamed for letting this get out of hand and they are still dilly dallying and infact celebrating getting to a 2.5% FED rate amidst a soaring inflation- this is shameful and I think a few heads should roll at the FED.
The job openings are still very high, this tells me this trend may not peak for another 2-3 months or even more, and certainly not before the FOMC in September. The market has rallied on recession confirmation news since last Friday on the 28th. I do not think we are in recession with these employment numbers.
The fact that those IN-charge are so out of touch of reality and will not address this is simply beyond me. This coupled with a spike in speculative mania tells me the FED’s job is far from done and the longer they delay , the harder the landing will be. It will not even be a hard landing, it will be a crash landing.
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Have we seen the high in FED hiking?
I think the markets have sighed relief due to the FED only hiking 75 BPS versus 100 in their last meeting. The markets think the largest of rate hikes are behind us and the FED may embark on rate cuts next. A lot of this rally is based on premise the FED will raise by only 50 or even 25 BPS in September.
I personally think that with oil dropping below that 100 dollar mark, however the food and wage pressures remaining high, will mean the FED will actually make another 75 BPS rate hike in September followed by gradual softening of the hikes. We will be close to 4% FED Funds Rate by year end (and not 3%) and I think that is likely to add headwinds to the markets as very few folks seem to believe this to be the case at the moment.
If true, this may support the US Dollar going into September - October until it becomes clear the US Central Bank will back off from more aggressiveness and the fact that the other Central Bankers globally ate forced to tighten further while the FED begins to ease.
Son, in my opinion, I think the market is pricing in no more 75 BPS hikes from this FED and I think that calculation may prove to be ultimately wrong as I expect atleast one more 75 BPS hike, possibly more with plateauing later in the year in December.
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