The S&P 500 eked out a 0.1% gain last week, cooling off from a strong March with investors taking profits and rebalanced for quarter-end.
Though developments around the war in Ukraine will remain front and center, the spotlight this week will be Wednesday’s minutes of the Federal Reserve’s March meeting, which will be scrutinized amid widespread expectations for a +0.5% interest rate hike next month.
While stocks have shrugged off concerns over the outlook for growth, the bond market is flashing warning signs on Friday. Meanwhile, oil prices will remain in the spotlight after their steepest weekly decline in two years.
Here’s what you need to know to start your week.
1. Fed minutes
Wednesday’s minutes of the Fed’s March meeting will give investors an update on how officials view the monetary policy outlook and may also contain more details on plans to shrink the central bank’s $9 trillion balance sheet.
The Fed hiked rates last month by +0.25%, the first step in a monetary tightening cycle aimed at curbing inflation, currently at a four-decade high. Since the March meeting several Fed officials, including Chair Jerome Powell, have indicated that they are prepared to hike rates more aggressively to prevent high inflation from becoming entrenched.
Friday’s solid employment report paved the way for a half percentage point rate hike from the Fed at its next meeting on May 4.
2. Bond market flashes red
A closely watched part of the U.S. Treasury yield curve inverted again on Friday after the strong U.S. jobs report solidified expectations for bigger rate hikes by the Fed.
An inversion of the yield curve, when shorter-dated yields rise above longer-dated ones, is a phenomenon that has predicted past recessions.
Stock markets have seemingly shrugged off concerns that tighter monetary policy and uncertainty arising out of the war in Ukraine could tip the economy into recession, but bond investors seem to have taken a more pessimistic view.
However, reliability of yield curve inversions as an indicator of recession has decreased, particularly as the Fed’s massive bond purchasing programs are keeping long-dated yields suppressed.
3. Oil price volatility
Both Brent and U.S. crude oil ended last week down around 13%, their largest weekly declines in two years after U.S. President Joe Biden announced a release of 1 million barrels per day of oil for six months from May, in what is to be the largest ever release from the U.S. Strategic Petroleum Reserve.
Russia’s invasion of Ukraine has seen oil prices rise around 30% in the first quarter, with soaring energy costs becoming a key driver of inflation expectations.
Key Economic Calendar (Weekly)
Apart from Wednesday’s Fed minutes, the economic calendar is light for the coming week with the main focus likely to be Tuesday’s ISM services PMI.
Economists are expecting the index to rebound to 58.0 from what was a twelve-month low of 56.5 in March. The effects of the Omicron wave saw the index fall from an all-time high of 69.1 reached in December and concerns over soaring inflation may now limit consumer demand.
All times listed are EDT
Tuesday
Hong Kong and China markets closed in observance of Ching Ming Festival.
10:00: US – ISM Non-Manufacturing PMI: predicted to edge up to 58.0 from 56.5.
Wednesday
14:00: US – FOMC Meeting Minutes
Top 3 Leading and Lagging Sectors (Weekly)
The financials (-1.5%), and industrials (-1.16%) sectors were the weakest performers, while the defensive-oriented utilities (+3.71%), real estate (+3.65%), and consumer defensive (+2.39%) sectors outperformed with decent gains.
Market Breath (Weekly)
% of Stocks Above 50 DMA = 57.95% (+3.48%)
% of Stocks Above 200 DMA = 39.90% (+0.28%)
Market Technicals – (S&P 500, NASDAQ, Bitcoin, Bonds & Credit Spread, NAAIM)
$SPX (S&P 500) vs $RSP (S&P 500 Equal Weight) – (Net High/Low +45)
The S&P 500 ($SPX) eked out a modest +0.06% weekly gain, cooling off from its opening week gain at 4,585 classical resistance level highlighted last week.
With $SPX remaining above all its major moving averages, the immediate support to watch for $SPX this week remains at 4,390 level, a level that would undercut all major moving averages and volume-weighted average price (VWAP) from all time high, also coinciding with a major horizontal support.
$QQQ (Nasdaq 100) vs $QQQE (Nasdaq 100 Equal Weight) – Trend Reversal In Play
Tech and growth names have been hard hit since the start of 2022 by a rapid rise in Treasury yields on the back of expectations that the Fed will hike interest rates aggressively to combat high inflation as higher rates can hurt their companies with high valuations based on the prospect of future profits.
$QQQ recorded a further gain of +0.70%, challenging its 200-day moving average during the week. The rally in both $QQQ and $QQQE continues to play out the highlighted trend reversal Double Bottom formation from middle of March.
With $QQQ currently sitting on its rising 10-day moving average, along with VWAP from all time high, it is plausible for $QQQ to re-challenge its 200-day moving average in near term.
The support level to watch for $QQQ this week remains at $340. Similar to $SPX, this is a level that undercuts all major moving averages which coincide with previous support level.
$BTCUSD (Bitcoin / USD) – Price Action Resisting 200-Day Moving Average, Bearish Head and Shoulder Pattern Remains Valid
Bitcoin ($BTCUSD) ended the week on a subtle note with a -0.99% decline. Its 200-day moving average is currently the major resistance level to be reclaimed for any signs of shorter term strength for further rally in Bitocin.
The next level of support to watch for $BTCUSD is at $44,240, a breakdown from the gain garnered over the last 2 weeks, coinciding with an undercut of its 20-day moving average and previous resistance turned support level.
$PCCE (Put/Call Ratio Equity) & $VIX (Volatility S&P 500) – Volatility Remains with $PCCE Uptrend Since January Intact
The spike level to watch for $PCCE is at 1.00. The the current reading of 0.784 (+13.54%) reflects risk-on sentiment of the market, However, $PCCE remains on short term uptrend since the start of 2022.
$VIX have further eased off from its peak to 19.62 (-5.67%), also affirming the risk-on sentiment of the $PCCE reading with its decline.
$IEI/$HYG (Credit Spread) – $TNX (10YR Treasury Yield) – Yield near 3 Years High
Market participants are keeping a close watch on credit spreads as one of the better economic signals. Junk bond issuers are perceived to be bigger credit risks, so if economic growth slows or contracts, there will be increased angst that these issuers won’t be able to make good on their interest payments. Hence, a widening high-yield spread is regarded as a leading indicator of difficult economic times which, in turn, often invites a more challenging period for the stock market since difficult economic times translate into weaker earnings prospects.
Credit Spread further decline to 1.48% over the week (-0.02).
$TNX took a breather after topping to its 3 years high in the previous week, declining to 2.376% (-0.115) as the market grappled with high inflation and a Federal Reserve that could easily spark a downturn as it aggressively tightens policy.
NAAIM Exposure Index 79.72 (+27.03)
The NAAIM Exposure Index represents the average exposure to US Equity markets reported by members of the National Association of Active Investment Managers. It provides insight into the actual adjustments active risk managers have made to client accounts over the past two weeks.
This week’s NAAIM Exposure Index number is: 79.72 further bouncing off from the extreme of 30.3 recorded in the first week of March.
Top Trading Ideas for the Week
$DH setup still holding well when $XLV is down -1.48% pic.twitter.com/nSaocR8lVZ
— Jeff Sun, CFTe (@jeffsuntrading) April 1, 2022
$DUOL technology name, IPO 7 months ago.
rising 10/20 MA with bullish crossover after 6 months of decline. volume remains subtle as it continues to build a base beneath the highlighted DTL.
$102.55 is a clean pivot that would take this name out of its DTL, and YTD resistance pic.twitter.com/t5LSg22edq
— Jeff Sun, CFTe (@jeffsuntrading) March 31, 2022
$CSIQ designs and manufacture solar modules and solar products..
very defined DTL with 4 lower highs. current price action have already cleared 3 VWAPs from from the highs, with the last VWAP coinciding with DTL BO level
taking out $38 will exhibit strength to its rising MAs pic.twitter.com/91RUEGjSzq
— Jeff Sun, CFTe (@jeffsuntrading) March 31, 2022
$ZI very clustered chart at first look but plenty of significant technical build up in this name
-double bottom basing chart with RS since feb
-2 weeks price coiling between both VWAPs IPO and ATH
-price action rejection at 200MA on 3 period since janall points to $61 breakout pic.twitter.com/oG6bsimclg
— Jeff Sun, CFTe (@jeffsuntrading) March 27, 2022
Do follow me on twitter for more daily trading ideas.
