It was a bullish month for equities, SPX +237pts (6.2%) to 4076, with the Transports +1256pts (9.4%) to 14648. WTIC cooled by -$1.39 (1.7%) to $78.87. Copper climbed +42 cents (10.9%) to $4.23. The USD weakened by -135bps to DXY 101.92. The US 10yr yield fell -36bps to 3.52%.
SPX, monthly
The third monthly gain of four, almost fully negating the December decline. The settlement above the 10MA (3958) is decisive, for what has to be seen as a bullish monthly settlement. Momentum ticked upward, if remaining very negative… and is STILL a restraint to rallies.
S/t bullish… as the upper 4100s appear probable. I’d accept the bolder bulls could seek far higher levels, but that looks extremely difficult considering the worsening macro and geo-political situation.
Best guess… 4170/4200, before swinging lower (insert your own excuse!), taking out the Oct’ low of 3491, and testing giant psy’3K. Even the latter wouldn’t merit being called a crash.
*yes, I will wait to re-short via SPY PUTS… with sp’4170, or a little higher. That seems realistic next week. If I have to wait another few weeks… that is fine!
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Trans, monthly
A very bullish month for the ‘old leader’. Bulls could argue multi-month structure is a bull flag, not least as we settled above the monthly 10MA. S/t bullish, with next resistance of the 15300s.
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WTIC, monthly
The seventh monthly decline of eight, as oil remains m/t bearish. The three most recent monthly candles are all rather spiky on the lower side, which leans to flooring. I’d note the 10MA in the $91s. Things turn decisive >$94.00, as most viable via a geo-political upset.
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Copper, monthly
A third consecutive monthly gain. Whilst the main market was higher, its still surprising to see a monthly settlement above psy’ $4.00. I have to wonder if the situation could be compared to spring/summer 2008, when copper managed a new hist’ high of $4.26, before imploding to $1.25.
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USD, monthly
A fourth consecutive net monthly decline, having cooled from the 114s to 101s. Certainly, this drop has helped pressure almost every dollar denominated asset class upward, not least equities.
Now… its just a case of whether we see a monthly (whether February or March) settlement under the giant psy’ 100 threshold, or instead resume upward. Original target of the 120s still looks realistic, but yes… it’d be dropped with a monthly close <100.
Personally, I struggle to see why anyone would favour the Euro, GBP, Yen, or almost any other FIAT currency to the USD. Whilst the US economy has its ‘issues’, its in a far better state than almost anywhere else.
If 2023 does see ‘panic and capitulation’, then money will flood into the USD, which would cause massive problems for a great many things, not least those nations with a mountain of dollar denominated debt.
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US 10yr yield, monthly
The US 10yr yield fell for the second month of three. Structure is a bull flag, with a mirror bear flag in bonds.
Mr Market still doesn’t take the Fed seriously, and doesn’t believe rates will be held around 5% for long. Many – such as Prof’ Siegel of Wharton, are already calling for rate cuts in the second half.
The historical irony is that a rate cut is the ultimate equity sell signal, not least for the banks, who have benefited from higher net interest income.
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Looking ahead
Wednesday will see ADP jobs, PMI/ISM manu’, JOLTS, construction, vehicle sales.
Earnings: WM, MO, TMUS, PTON, BSX, HUM, TMO, GSK, ABC, META, ALNG, AFL, ALL, MET, ELF
Event: FOMC announcement 2pm. Rate hike eight, +25bps to 4.50-4.75%. Powell will host a press conf’ at 2.30pm, which will last around an hour.
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Goodnight from London