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This week won’t have Fed speakers as they enter the blackout period ahead of their February 1 rate announcement. That will leave the economic data and bond auctions as the main headlines this week.
The big data points will be fourth quarter GDP, PCE, and U of Michigan, which won’t come until the end of the week. GDP is expected to climb at an annualized rate of 2.7% for the fourth quarter, while the price index is expected to have increased by 3.2%. That translates to a roughly 5.9% nominal growth. The Atlanta Fed currently sees fourth-quarter GDP at 3.5%. Any number around 3% is very healthy and has an above-trend growth rate.
This week, there will also be 2-year, 5-year, and 7-year auctions. This will be important because, as I expected, the Treasury General Account started to tick higher at the end of last week. The Treasury reports the TGA’s value daily, with a one-day lag. The TGA was up to $455 billion as of Thursday. While the Treasury is using extraordinary measures to fund the government, I think the Treasury will probably keep building up the TGA so it can have the extra cash for when the debt ceiling debate kicks into higher gear and it has exhausted all of its other options.
The TGA and reverse repo activity have the biggest impact on reserve balances, and reserve balances fell through Thursday for the week, which helps to explain the drop in the S&P 500 mid-week.
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S&P 500 (SPY)
The S&P 500 appears to have formed a corrective running triangle, a consolidation pattern. This pattern suggests we break lower; it has three touches on the top of the triangle and just two contacts on the bottom of the triangle—usually, the triangle patterns break following the third touch of the trend line.
What makes this more convincing to me is that we see the same pattern in the BKX bank index. I pointed this pattern out about two weeks ago, in the daily newsletter for subscribers, before the bank earnings kicked off.
Dow Jones (DJI)
The same scenario is not visible currently in the QQQ or Dow Jones Industrials. The Dow Jones Industrial Average has been trending sideways for a bit and has been near a main support level of around 33,200, so that is the level to watch this week for the Dow, which will need to hold to avoid further losses.
The Dow continues to be the key to the market in many ways because it has outperformed quite a bit, and if it faltered and declined, it would probably be a warning sign for the rest of the market.
One reason is that the Dow is heavy in financials and industrial stocks, and these have been two of the biggest gainers since the middle of October. Goldman has been one of those big gainers but has pulled back sharply since it reported fourth-quarter results. Goldman is also close to support around $340, which could serve as a leading indicator for the Dow, should Goldman begin to break lower.
Ford has been trending lower more recently in what appears to be a descending triangle. It is also apparent that the RSI is trending lower, suggesting a loss of bullish momentum in the share price. For Ford, the big level of support that needs to hold comes at $11.
Netflix spiked following its results, delivering better-than-expected net additions. The stock rallied on Friday, and it appears it could have just been related to a significant drop in implied volatility. We saw something similar last week on the banks like JPMorgan, so it would not be surprising if Netflix gave back some of Friday’s gains this week.
That’s all for this week,
Charts used with the permission of Bloomberg Finance LP. This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Past performance of an index is not an indication or guarantee of future results. It is not possible to invest directly in an index. Exposure to an asset class represented by an index may be available through investable instruments based on that index. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.