To The Moon

All of the major averages posted losses for the week. The Dow$DJIA(DJIA)$ ended 0.01% lower. The S&P 500$S&P 500(.SPX)$ lost 0.69% for the week, while the Nasdaq$NASDAQ(.IXIC)$ ended 1.57% lower. Trading reflected some consolidation efforts and growth concerns in a slowing economic environment as Fed officials have reiterated that they are not done yet raising rates. St. Louis Fed President Bullard acknowledged that the fed funds rate is not yet at a sufficiently restrictive level and that it may need to go to 5-7% in the battle to get inflation under control.

Wednesday’s Federal Reserve meeting minutes will be the main highlight of a holiday-shortened week. The most important shopping period of the year kicks off on Friday in what will be a key test for U.S. retailers. Also, the cryptocurrency market continues to be in focus as more news emerges about the FTX meltdown.

Here’s what you need to know to start your week.

1. Fed minutes

The Fed is set to publish the minutes of its November meeting on Wednesday with investors eager for any sign that policymakers may be considering slowing the tightening process after hiking rates more rapidly this year than any time since the 1980s.

Fed Chair Jerome Powell and other policymakers have signaled that the central bank could shift to smaller rate hikes next month to avoid tightening more than necessary and sending the economy into recession.

At the same time, Powell has said rates ultimately may need to go higher than the 4.6% that policymakers thought in September would be needed by next year.

2. Black Friday

Against a background of soaring inflation and rising interest rates, a key test of consumer demand arrives on Nov. 25, when retailers launch “Black Friday” sales – traditionally one of the year’s strongest shopping days.

Recent data showed that U.S. retail sales rose more than expected in October, indicating that consumers may be on more solid footing heading into year-end. Consumer spending accounts for more than two-thirds of U.S. economic activity.

Retailers have offered mixed results in the most recent earnings season. Last week, Walmart$Wal-Mart(WMT)$  raised its annual sales and profit forecast as demand for groceries was expected to hold up despite higher prices, while Target$Target(TGT)$  forecast a surprise drop in holiday-quarter sales after warning of “dramatic changes” in consumer behavior that were hurting demand.

3. Dollar past the peak?

The dollar index peaked at a 20-year high of 114.78 in September and has been falling ever since. With the currency on track to post its biggest quarterly loss since the second quarter of 2017 investors are now asking whether it has passed the peak.

The rise of the dollar has been a dominant trading theme of 2022, thanks to the Fed’s rapid rate hikes, giving the currency an edge over its peers among investors.

But analysts from Goldman Sachs$Goldman Sachs(GS)$ said Friday that a dollar top would still appear to be “several quarters away,” noting it does not expect the Fed to embark on easing until 2024. It added that U.S. growth is not expected to bottom out soon.

Key Economic Calendar (Weekly)

The coming week will have much of the relatively light calendar-based risk compressed into the middle of the week before market participation dries up and becomes more vulnerable to potential tape bombs (FOMC Meeting Minutes).

All times listed are EST

Wednesday

9:45 US – Flash Services PMI: forecast to increase from 47.8 to 48.0

14:00 US – FOMC Meeting Minutes

Thursday

US – Thanksgiving Day: (NYSE markets closed)

Top 3 Leading and Lagging Sectors (Weekly)

Only three S&P 500 sectors squeezed out a gain this week; consumer staples (+1.5%), healthcare (+0.6%), utilities (+0.3%). On the flip side, basic materials (-2.0%), consumer discretionary (-1.9%), and energy (-1.8%) were the biggest losers.

Weekly Heat Map

Market Breath (Weekly)

% of Stocks Above 20 DMA =64.24% (-16.58%)

% of Stocks Above 50 DMA = 66.69% (-6.46%)

% of Stocks Above 200 DMA = 42.47% (-3.30%)

Market Technicals – (S&P 500, NASDAQ, Bitcoin, Bonds & Credit Spread, NAAIM)

$SPX (S&P 500) – (Net High/Low +18)$S&P 500(.SPX)$

A hard landing for the economy was a prominent concern for market participants as the central banks ramped up their fight against inflation. It led to broad-based selling, rooted in worries that there will soon be large cuts to earnings estimates. Accordingly, there was a reticence to pay up for stocks and an inclination to take risk off the table. Worries about an economic downturn have hammered equities this year. The S&P 500 remains down -16.8% for the year to date, remaining on track for its largest annual decline since 2008.

$SPX pulled back -0.69% this week after getting rejected by the highlighted trendline resistance. At the current juncture, $SPX remains above its rising 10/20-day moving average as it remains inside the month long uptrend channel, below its medium term downtrend line.

The resistance to reclaim for further positivity in the market is at 4,080, the current declining 200-day moving average level.

Bull Case: Reclaim above 4,080, the current declining 200-day moving average level.

Bear Case: Breakdown of 3,850 level, breaching its rising 10 & 20-day moving average. Next support at 3,700 level.

$QQQ (Nasdaq 100) – Similar Range Breakout From July 2022 May Be In Play$Invesco QQQ Trust(QQQ)$

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.

The tech-heavy $QQQ came down lower with a loss of -1.09%, sitting on the pivot support of the highlighted consolidated range. At the current juncture, $QQQ remains above its rising 10/20-day moving average..

The support level to watch for $QQQ this week is revised up to 274, undercutting its current rising 10/20-day moving averages.

Bull Case: Reclaim above 293 the immediate classical resistance.

Bear Case: Breakdown of 274 level, undercutting its current 10/20-day moving averages.. The next support level is at 260.

$BTCUSD (Bitcoin / USD) – A True Breakdown, But More Weakness Ahead

Bitcoin ($BTCUSD) parred losses from the earlier week with a subtle +1.45% gain. $BTCUSD remains languishing at the $16,000 level as $3 billion escaped crypto exchanges in early November amid a bank run on fears of an FTX contagion.

$BTCUSD daily action continue to morphed out a further Bearish Pennant pattern prompting the risk of a further accelerated sell off in near term remains.

The level of support to watch for $BTCUSD this week remains at $15,630, a breakdown of the year to date low.

Bull Case: Recapturing last week losses and reclaim above $20,000.

Bear Case: Breakdown of $15,630, the year to date low.

$PCCE (Put/Call Ratio Equity) & $VIX (Volatility S&P 500) – Lowest $PCCE Print In 4 Months Violated Mid-Term Bearishness

VIX >30 is assumed to accompany large volatility, resulting from increased uncertainty, risk, and investor fear. VIX <20 generally correspond to stable, stress-free periods in the market. Higher VIX levels equates to more expensive options premium and vice versa for lower VIX level.

The spike level to watch for $PCCE in the last 24 months period is at 1.00. The current reading is 0.715 (+13.15%), a week after setting lowest print for $PCCE over the last 4 months, a violation of its year-long build up in momentum for a major sell off for the equities market.

Similarly, the VIX volatility index, also known as Wall Street’s fear gauge inched up to 23.11 (+2.57%). Upward momentum in $VIX remains for an imminent sell off in the equities market ahead.

$VIX/VXV – Reading at 0.89 (Tranquility)$Cboe Volatility Index(VIX)$

The VIX/VXV measures the ratio between 1-month implied volatility and 3-month implied volatility, which is helpful as it filters out higher baseline readings on VIX.

If it is greater than one, it implies uncertainty, negative for equities. On the contrary, such high reading (i.e. spikes) coincide with market bottoms.

If it is less than one, it implies tranquility, favorable for equities.

If it is below 0.82, the returns for S&P500 are often less than stellar.

$IEI/$HYG (Credit Spread) & $TNX (10YR Treasury Yield) – Aggressive Equity Rally Was a Relief Rally In An Inverted Yield Environment$IEI(IEI)$ $HYG(HYG)$

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.

Higher Credit Spread = Insolvency Concerns

Lower Credit Spread = Healthy Market

Credit Spread movement remains subtle as it inched back up to 1.55 (+0.01) for the week. The year to date high level is at 1.64 set in early July.

The continued inversion along yield curve this week reflected worries about the Fed over tightening. The 2-yr Treasury note yield rose 19 basis points this week to 4.50% while the 10-yr note yield fell one basis points to 3.82%.

NAAIM Exposure Index 64.96 (+21.81%)

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. The blue line depicts a two-week moving average of the NAAIM managers’ responses.

This week’s NAAIM Exposure Index number is: 64.96 (Wednesday)

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