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It will be another busy week for the market, with CPI on Tuesday, the Fed on Wednesday, retail sales on Thursday, and BOE and ECB meeting on Thursday. Additionally, on Monday, there will be a 3-year and a 10-year Treasury auction, followed by a 30-year auction on Tuesday. So plenty of data points to move stocks, bonds, and the dollar all week.
The headline CPI is estimated to have risen by 7.3% y/y versus last month’s 7.7%, while the Core is expected to have increased by 6.1% y/y, down from the previous month’s 6.3%. Meanwhile, the general market expectation is for the Fed to raise rates by 50 bps, with one left to wonder what the dot plot will look like. I believe it will increase the 2023 target to at least 5%. (Free story)
Dow Industrial (DJI)
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The technical charts seem to suggest that a pullback is now in order. The Dow is the best place to start because this has been without a doubt the leading average over the past several weeks. The diamond top, which has formed over the last two weeks, has broken down, and the pattern has shifted into a head and shoulder reversal pattern, suggesting the average fills the gap at 32,500 and potentially goes lower.
Additionally, the RSI has broken down and is trending lower, a sign that momentum has shifted from bullish to bearish.
Dow Transports (DJT)
On top of that, the Dow Jones Transport has also broken lower, after forming a double top reversal pattern, with the potential to fill a gap at 13,490.
A big reason why the Dow has broken down is that Goldman Sachs has broken down after falling out of a diamond reversal pattern. The stock filled the gap and fell below support at $360. Now $360 has served as resistance, with the next support level not found until $348, where another gap waits to be filled.
Another reason the Dow appears to have a Head And Shoulders pattern is because IBM has a Head And Shoulders pattern. IBM had been one of the leaders of the Dow, and if IBM breaks $145, it is likely to result in IBM falling to $139 and taking the Dow lower with it.
Honeywell is also rolling over and is very close to breaking its significant support level at $211, which could send the stock significantly if it starts filling those gaps down to $174.
S&P 500 (SPY)
Of course, for the S&P 500, the significant level of support remains at 3,900, and should that support level break, there is still that big gap at 3,750 that needs to be filled. The pattern appears to be one massive bear pennant that has broken lower. So a drop to 3,750 may only be the beginning.
I also think yields are approaching a low and are due to reverse high again. This past week, the 30-year hit oversold levels, with the RSI dipping below 30. It also hit the 61.8% retracement level in the recent rally. For the 30-year, it is easy as watching the 10-day exponential moving average because it has served as resistance as the yield has moved lower. A break above the 10-day moving average would also take the rate above the downtrend that formed from the peak and send the 30-year rate higher back towards 4%.
It means the same thing for the TLT, in which the uptrend and the 10-day exponential moving average act as support on the way higher. There is a gap to fill down around 95; it is far off right now but worth being aware of.
Good luck 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.