Weekly Wisdom: Powell Pushes Back On March Cut

Greetings fellow traders and welcome to your February 1st edition of Weekly Wisdom: Levels to Know and Moves to Look For!

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

Taking a look back on this week, January 29 – February 2:

• Markets had some down movement this week with $SPX futures selling lower on Wednesday afternoon following Jerome Powell’s press conference where he argued against a rate cut in March, which markets had been strongly pricing in. Many market participants are now looking out to June for the first rate cut. 
• Data for the week started on Tuesday with a beat for the Conference Board’s consumer confidence index at 114.8 vs 114.2 expected. The JOLTS job openings was also a strong beat at 9.03M vs 8.73M expected.
• $MSFT reported fiscal Q2 EPS of $2.93 vs $2.76 expected, revenue of $62.0 billion vs $61.0 billion expected, and guided for fiscal Q3 revenue of $60-61 billion vs $60.6 billion expected.
• $AMD reported Q4 EPS of $0.77 as expected, revenue of $6.17 billion vs $6.11 billion expected, and guided for Q1 revenue of $5.1-$5.7 billion vs $5.72 billion expected.
• $GOOGL reported Q4 EPS of $1.64 vs $1.60 expected and revenue of $72.3 billion vs $70.8 billion expected.
• Wednesday was a busy day that started off with a miss for ADP non-farm employment change at 107,000 vs 148,000 expected. The employment cost index q/q was a miss at 0.9% vs 1.0% expected. Chicago PMI  was also a miss at 46.0 vs 47.9 expected. Later in the afternoon, the Federal Reserve left rates unchanged at 5.25% to 5.50%, with Powell saying a cut in March would be unlikely. Markets sold off on those comments.  
• Thursday’s weekly unemployment claims were a miss at 224,000 vs 213,000 expected. Preliminary non-farm productivity q/q was a beat at 3.2% vs 2.4% expected, while preliminary unit labor costs were a miss at 0.5% vs 1.3% expected. Final manufacturing PMI was a beat at 50.7 vs 50.3 expected. ISM manufacturing PMI was a beat at 49.1 vs 47.2 expected, with ISM manufacturing prices also beating at 52.9 vs 46.0 expected. Construction spending m/m was a beat at 0.9% vs 0.5% expected. After the market close, $AAPL, $META, and $AMZN are set to report earnings.  
• Friday, February 2 ends the week with the January jobs report which includes non-farm payrolls, average hourly earnings, and the unemployment rate at 8:30 a.m. ET. The University of Michigan consumer sentiment and inflation expectations index plus factory orders m/m will be released at 10:00 a.m. ET.

Here’s what we are eyeing next week, February 5 – 9:

Level Highlights:

• $SPX futures sold off Wednesday from an open of 4930 to a close of 4870 as Powell tried to convince markets that a rate cut was not coming as soon as March.  
• The Fed is staying adamant that they need to see inflation come down more and stay down.  
• Powell does not want to declare victory at the first touch of 2.0% inflation, something that has yet to happen.  
• Despite Wednesday’s sell off, $SPX futures are still above the 4850 momentum area we noted bulls want to hold last week.  
• Markets are currently bouncing up from Wednesday’s low of 4866, trading up to as high as 4895 on Thursday afternoon.  
• Bulls prefer to continue to see 4850 hold, with the next support area below at 4810-4790.  
• Bulls are ultimately looking for a close back over 4930 which is Wednesday’s open in order to negate the negative and damaging Fed day candle.  
• Bears are excited to see $VVIX bounce off of 75 last week and continue higher this week, nearly reaching 90 before backing off on Thursday.  
• Bears are now looking for the next leg up in $VVIX over 90 to get to 95, with a break over 95-100 possibly resulting in a bigger sell off in $SPX. 
• Likewise, $VIX has been finding resistance in the 14.50-15 zone since the end of November last year – bears are looking for a close over 14.50 and an eventual leg up through the 15 level to get a 16 handle, which should also result in a larger $SPX sell off.

Upcoming News:

• Monday, February 5 starts the week off with final services PMI at 9:45 a.m. ET, followed by ISM services PMI at 10:00 a.m. ET.  
• Tuesday, February 6 does not bring any meaningful economic data. $SNAP reports earnings after the market close.
• Wednesday, February 7 gives us the trade balance update at 8:30 a.m. ET. There is also a 10-year Bond auction just after 1:00 p.m. ET. We’ll then get consumer credit m/m at 3:00 p.m. ET.  
• Thursday, February 8 starts off with weekly unemployment claims at 8:30 a.m. ET. We’ll then get final wholesale inventories m/m at 10:00 a.m. ET, followed by a 30-year Bond auction just after 1:00 p.m. ET. 
• Friday, February 9 ends the week quietly with no new economic data.

Here’s Your Chart of the Week:

Via Bloomberg: Traders Pile Into Bets on VIX Soaring to 50 as Fed Risks Mount

Source: https://www.bloomberg.com/news/articles/2024-01-31/fed-day-s-biggest-fear-gauge-bet-is-on-vix-rising-toward-50?utm_source=website&utm_medium=share&utm_campaign=twitter

SPY Daily Update:

$SPY made one more push higher on Tuesday to 492 before failing back lower under 489 resistance on Wednesday with the Fed. 482.50 is currently holding as support, with 477 as the next major support level below should the selling see follow through next week. 

SPY Weekly Update:

$SPY weekly chart is giving a doji this week – should we end up pushing higher and closing this week green, this will be 13/14 weeks that we have closed green. Markets may be due for a bigger pause in the coming weeks. 

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-Patrick Hawe

Disclosures

Patrick Hawe’s current positions:

*As of 2:36pm ET  February 1, 2024

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