Weekly Wisdom: DXY Breaks Down, Fed Meeting Next Wednesday

Greetings fellow traders and welcome to your October 27th edition of Weekly Wisdom: Levels to Know and Moves to Look For!

Let’s get to what we’re currently seeing in these crazy markets and what we have our focus on going forward.

Taking a look back on this week, October 24-28:

• Last week we posted the $DXY daily chart for the chart of the week as it was building out a daily wedge.  We noted for bulls to get excited, $UUP needed to break this wedge down below 30, and that’s just what happened Tuesday morning
• Also on Tuesday, bulls got the VIX breakdown below 30 they were looking for. VIX has been trading sharply lower this week down toward 27.
• Rates also appear to have finally topped out in the short term. TNX, the 10-year yield, reached the first level over 4% we gave last week of 4.3% (TNX year high 4.33%) before cooling back down to 4%.
• VVIX took a very hard drop to lead the VIX lower, starting the positive divergence we began to point out 2 weeks ago, reaching new lows for October and nearly new lows for 2022.
• As a result, SPX got a big boost through 3800 resistance, reaching as high as 3886, just shy of the next big resistance at 3900.
• $META, $GOOGL, $MSFT, and $SNAP have all reported earnings with lackluster results and even worse reactions with the names all trading much lower than before their reports.  $AAPL and $AMZN are set to report after the close today.

And here’s what we are eyeing next week, October 31 – November 4:

• Now that SPX has given the upside move to 3900 through the 3800 breakout, bulls have the job of building us out and holding us up in order to get ready for another leg higher.  
• SPX made a higher low on the daily chart on 10/21 with a low of 3641 – that is the level that is crucial for bulls to hold, otherwise, new lows on the year are very possible.
• More active bulls should become cautious if 3750 is lost, but ultimately the new uptrend is not broken until the low of 10/21 is lost.
• $UUP, the Dollar Index ETF, remains below the key 30 level that bulls needed to break down. Bulls will need this to remain under 30 and should be very careful if 30 is reclaimed and this starts to trend upwards again.
• Another short-term warning flash bulls should be aware of is the downside extension on the VVIX, which is arguably the most extended to the downside from its daily 8EMA that it has been all year. Be careful and watch for a possible VVIX bounce within the next week or so.
• Monday, October 31 we’ll get data from the EU for CPI Flash Estimate y/y at 6:00 am ET.  We’ll also get the Chicago PMI update at 9:45 am ET.
• Tuesday, November 1 we’ll get ISM Manufacturing PMI data at 10:00 am ET and the Labor Department’s JOLTS for September.
• Wednesday, November 2 is a big day. It starts with the ADP Non-Farm Employment Change at 8:15 am ET, followed by the FOMC statement and Federal Funds Rate update at 2:00 pm ET. Fed Chair Powell will hold a press conference at 2:30 pm ET.  Markets are expecting a 75bp rate hike, and bulls will be closely listening for Powell to hint at a slow down coming in rate hikes.
• Thursday, November 3 the UK will give its rate hike decision with the BOE Monetary Policy Report at 8:00 am ET.  BOE’s Gov Bailey gives a follow-up speech at 8:30 am ET.  The Labor Department reports Weekly Jobless Claims at 8:30 am ET.  And at 10:00 am ET we’ll get the updated ISM Services PMI.
• Friday, November 4 we’ll get data updates for October Non-Farm Employment Change, Unemployment Rate, and Average Hourly Earnings m/m at 8:30 am ET.

Here’s your Chart of the Week:

The S&P 500 saw its biggest weekly gains in four months as evidence built that active fund managers are getting worried about missing a winter market rally

Source: https://www.bloomberg.com/news/articles/2022-10-21/stock-manager-paranoia-is-only-thing-the-market-has-going-for-it

SPY Daily / Weekly Update:

SPY broke out over 380 with the help of UUP,  TNX, and VIX all coming down to lower levels.  Now bulls would prefer to see 380 hold – however, 363.50 is the real higher low pivot bulls cannot lose for now.

SPY weekly chart is working on a big 2-week rally and may be due for a pause in front of 3900 – 4100 is big resistance.

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-Patrick Hawe

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