Not clear what's next? My thoughts for the coming week - 2023/02/27
In my view its really difficult to understand what would the market do this week!
Hello and welcome to another issue of 🕵 The Seeker 🕵
"Some things have to be believed to be seen." - Ralph Hodgson
Last Week
It was a slow and grinding sell-off, however the market reacted from the lows on each of the sell-off days, as well on Friday at the end of the session. Yields haven’t moved too much and inversion continued. The mood is still in the greed territory despite last week’s decline, visualized by the Fear/Greed Indicator.
PCE print on Friday, further confirmed that inflation is stickier than we thought, and the FED will have to step up their game and hit the breaks harder.
Analyze Some Charts
The 2-year yield, which is a proxy for interest rates, is continuing to climb up. During 2022 there was a high correlation with 2-year pushing up and Nasdaq selling off.
Weekly jobless claims are below 200 000 for the third week in a row, showing a powerful job market and another sign that FED has more work to do!
An indication that the disinflationary effects have already started? However, it may turn out to be the first signs of a real estate crash?
FED has signaled that their preferred inflation measure is the PCE (personal consumption expenditures). This increase in PCE is further justified by the Unemployment Rate.
All in all, the data is looking mixed and showing contrary signals for the future of the economy, however, the labor market is really strong. There is no big economic crash if everybody has a job right? So we may be in a no-landing zone, however, yields and interest rates are causing some technical moves in the markets…lower! But one of my quant strategies, is showing me a buy signal on QQQ 0.00%↑ for today!
Analyse SPY Charts
Okay, from the SPY 0.00%↑ we have some mixed signals, the price is at the support level after the breaout, which is usually the point where we want to enter after a breakout right? But then simultaneuosly technical indicators are suggesting downward momentum.
My quant spread tool however, suggests that the price is kinda entering the extremum point downwards. However, we want to follow the spread when it is exiting an extremum position not entering.
My suggestion:
I think that the market will rebound today (Monday), however I will be carefull for whats going on in the week, if momentum turns bullish then don’t fight. But we have to remember the deeply inverted yield curve!
What we know is that the real downturn in market prices start when the yield-curve re-steepens, not that much while it inverts. If that scenario becomes true I would expect that the worse thing would be the 10-year to sell off sharply above the 2-year. Then mortgage rates will really become unbearable and real housing crash will occur…
Two Stocks Ideas
My quant tools are suggesting a few stocks which look like good ideas to preserve value and safe heaven.
LLY 0.00%↑ (Eli Lilly and Company)
REGN 0.00%↑ ( Regeneron Pharmaceuticals)
Final Thoughts
Overall, I think the FED most probably will have to push the breaks harder, to tackle the hot labor market. I will be cautious here and look for value companies!
😎 Cheers! 😎
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