SVET Markets Weekly Update (January 23–27, 2023)

28 Jan 2023 by rate3

Markets zigzagged this week in anticipation of the FOMC's rate announcement. Bulls were energized by hints of an improving macroeconomic environment while bears pointed out the persistently low unemployment and inflationary pricing in the service sector.

As a result, BTC closed almost at January 23rd levels (Mon: 22,706, Fr: 23,108, +1.8 percent). At the same time, NASDAQ did notably better (Mon: 11,171, Fr: 11,621, +4.0), with positive price actions largely dictated by the overperformance of singular stocks like Tesla and Amazon during Thursday's and Friday's sessions.

Week's Updates:

S&P Global Composite PMI Flash (Jan): 46.6 (fact), 45.1 (prognosis);
Richmond Fed Manufacturing Index (Jan): -11 (fact), -5 (prognosis);
Building Permits (Dec): -1.0 percent (fact), -1.6 (prognosis);
GDP Growth Rate Q4: +2.9 (fact), +2.7 (prognosis);
Durable Goods Orders (Dec): +5.6 (fact), +2.5 (prognosis);
Jobless Claims 4-week Average (Jan 21st): 197.5K (fact), 209K (prognosis);
Chicago Fed National Activity Index (Dec): -0.49 (fact), +0.1 (prognosis);
New Home Sales (Jan): +2.3 percent (fact), -2 (prognosis);
Kansas Fed Composite Index (Jan): -1 (fact), -10 (prognosis);
Personal Income (Dec): +0.2 (fact), +0.2 (prognosis);
Core PCE Price Index (Dec): +0.3 (fact), +0.3 (prognosis);
Michigan Consumer Sentiment (Jan): 64.9 (fact), 64.6 (prognosis).
On Monday, the NASDAQ rose from 11,171 to 11,364, adding 1.7 percent during the day session. Meanwhile, BTC appears to be gathering momentum and lingered between 22.7K and 23K. It looks like traders are starting to contemplate the major resistance zone ahead (11.5K for NASDAQ and 25K for BTC), where their game plans might start to change.

At present, however, the worsening macroeconomic environment, including the Conference Board's Leading Economic Index (LEI) signaling a recession, is being ignored by the raging bulls. The LEI registered a decrease of 1.0 percent in December (to 110.5, 2016=100). November's decline was 1.1 percent. The LEI has curved much steeper during the past six-month period than over the previous one (December 2021 to June 2022).

On Tuesday, the markets were shaky due to pressure from heavily overbought stocks (on daily charts) in many sectors. Traders watched as the NASDAQ opened at 11302 and closed at 11334, adding a meager 0.3 percent. Similarly, Bitcoin opened at 22860 and closed at 23010, gaining 0.7 percent. However, just when it seemed like things were settling down, the BTC market took a sharp turn, correcting to 22300 in after-hours trading, losing 3.1 percent.

Additionally, the Flash US PMI Composite Output Index - an early indication of the PMI data for January to be published the following month - showed a slight upturn (to a 3-month high of 46.6), propelled by service sector firms continuing to expand their workforce (source: SP Global). This is added to by the Richmond FED Survey of Manufacturing Activity showing a minor decrease in the number of employees (-3 in January, compared to +3 in December) despite a sharp drop in the volume of new orders (-24 in January, compared to -4 in December). This might grab the attention of the FOMC's hawks at their upcoming meeting.

It was anticipated that bullish investors would not maintain an aggressive buying strategy in the lead up to the FOMC meeting. Furthermore, the release of Durable Goods data on Thursday and Core CPI Consumer Price Index for Core data on Friday were factors that influenced traders' decision-making on Wednesday. As a result, the markets exhibited fluctuations, initially declining due to an overbought relative strength index signal, and then rebounding as a result of short covering.

These fluctuations resulted in a 1.5% increase in both the NASDAQ (o: 11146, c: 11313) and Bitcoin (o: 22595, c: 22938) on the day. This uptick can be partially attributed to positive corporate earnings reports, including AT&T's EPS increasing from 0.57 to 0.61, IBM's EPS rising from 3.58 to 3.60, and Tesla's EPS growing from 1.15 to 1.19. However, these gains did not significantly alter the overall weekly trends for the NASDAQ and Bitcoin, which remained within their respective ranges for the week.

On Thursday, the Durable Orders report surprised analysts with a surge of 5.6 percent (to 286.9 billion - the sharpest increase in more than two years, since July 2020). It was led by a doubling of civil aircraft orders (+116 percent or +29 billion; it appears that a large portion of this gain came from Boeing reporting in December an order from United Airlines for 100 Boeing 737 MAX and 100 Boeing 787 Dreamliner).

Also, on January 26, a number of other leading economic indicators hinted at some moderation, including: The Chicago Fed National Activity Index showing a decrease of -0.49 in December, up slightly from -0.51 in November; The Kansas Fed Composite Index flattening to -1 in January, up slightly from -4 in December and -2 in November; December's New Home Sales increased by +2.3 percent (+0.7 in Nov). Additionally, the four-week average of jobless claims came in below expectations, at 197.5K, instead of 209K.

At the same time, the US economy continues to slow down, as shown by the Bureau of Economic Analysis reporting an annual GDP growth rate of 2.9 percent in Q4, while it was 3.2 percent in Q3. However, it exceeded market forecasts of 2.6 percent.

Despite all of that positivity, technical factors (a daily RSI's heavy overbought) as well as the looming FOMC meeting had the most influence on traders on Thursday. As a result, NASDAQ (open: 11458, close: 11512) and BTC (open: 23127, close: 23037) had a limited range, adding a meager 0.5 and 0.4 percent respectively during the day session.

The NASDAQ added 1.3 on Friday, closing the week above its key resistance level of 11,600 (opening at 11,470, closing at 11,621). Meanwhile, BTC edged up 0.9 percent (opening at 22,900, closing at 23,108). The University of Michigan Index, an indicator of consumer sentiment, showed 64.9 in January (compared to 67.2 a year ago).

On the other hand, the Bureau of Economic Analysis reported that December's personal incomes increased by 49.5 billion (+0.2 percent), while spending dropped -0.2 percent. Still, the core PCE price index (excluding food and energy) increased 0.3 percent.

The next week may be a corrective one, especially if the Federal Reserve's interest rate decision, which is to be announced at 3:00 PM (EST) on Wednesday, February 1, does not meet most market analysts' expectations of a 0.25 point increase (to 4.75 percent). Bulls may suffer if the increase is 0.5 points instead.

Additional negativity might be added by the underperformance of the following indicators: ISM Manufacturing PMI for January - 48.4 (previous), 48 (expected); ISM Non-Manufacturing PMI for January - 49.6 (previous), 50.3 (expected); JOLTs Job Openings for December - 10.458 million (previous), 10.2 million (expected); the Unemployment Rate - 3.5 percent (previous), 3.6 percent (forecast).

On the other hand, both the NASDAQ and BTC weekly charts look strong on the bulls' side as they enter their important resistance zones of 11.6K-12K and 24K-25K, respectively.

Overall, traders and investors should manage their positions and portfolios more attentively as the stocks and coins' risk-to-reward ratio may quickly readjust from January 30 to February 3.