U.S. Equity Markets closed higher following a volatile trading session. The NASDAQ 100 again led the rally, closing with a gain of 2.18%. Investors were increasingly optimistic that the Federal Reserve is closer to the end of the rate-hike cycle. Governor Christopher Waller, one of the most vocal about raising rates, said late Friday that he would like to see a slowdown in the pace of rate hikes. This followed recent commentary from Vice Chair Lael Brainard that the central bank is getting close to pausing. An end to rate hikes will weigh on the Dollar, supporting the outlook for risk assets like stocks. The Conference Board’s Leading Economic Indicators for December was weaker than expected. It showed domestic growth continues to soften, easing the case for more Fed rate hikes. Treasury yields are headed even lower. Last week, I discussed outlook for domestic interest rates. Specifically, focussing on how much higher the Federal Reserve will raise the Federal-Funds target rate. After all, since the start of 2022, it has risen from a range of 0% to 0.25% to the current 4.25% to 4.50% range. The current rate-hike cycle has been the most aggressive since 1980. Based on the current guidance from the central bank (dotted line), there is not much further to go from here. But the change resulted in 2022 being one of the worst years on record for bond-market returns as well as the traditional 60/40 portfolio. So, naturally, investors want to know if this will continue to be the case this year – or if the worst is behind us. After all, money managers are always looking for the most opportune moment to invest. They want to capture the greatest upside return. Remember, the idea is to invest in what the economy will look like eight to 12 months down the road and not what it looks like right now. Based on what we are seeing in the bond markets and U.S. Treasury yields right now, it seems the aggressive rate-hike cycle is close to hitting its zenith. And that means the upside potential for stocks and bonds is rapidly improving. First, we want to examine the yield on 10-year U.S. Treasury. That rate is important for the economy because it is used as a benchmark for all types of lending. If it is headed lower, that means domestic borrowing costs are likely to do the same. Looking at a current chart, it shows that the yield peaked in October 2022 at 4.25%. That tells us that bond investors believe the Fed is winding down the rate-hike cycle. Timing the end is a difficult thing to do. So rather than wait for the exact moment, money is being put to work now to lock in high yields. Next, let’s look at what’s going on with the 10-year U.S. Treasury yield compared to its 200-, 100-, and 50-day Moving Averages. These will give us an idea of the technical momentum. In other words, we can use these moving averages as points of support or resistance. If the current level is above one of those averages, it acts like a floor (support). But if the current level is below the average, it acts like a ceiling (resistance). This chart shows the 10-year U.S. Treasury yield is breaking down through all of its support levels. By looking at the averages over time, we are getting a better idea of the trend rather than the price right now. This is another sign that investors think the current rate environment is not going to improve. Within the S&P 500 Index, 10 of the 11 sectors finished higher. European Markets closed higher. The International Monetary Fund and Organization for Economic Cooperation and Development said global growth may not prove as weak as they originally anticipated. Both groups cited rapidly decelerating inflation growth. In addition, French President Emmanuel Macron and German President Olaf Scholz called for more corporate investment to compete with the U.S. and China, supporting the spending outlook. The EU’s Preliminary Consumer Confidence Indicator for January was weaker than expected but rebounded compared to December. Households were increasingly optimistic about the region avoiding a recession due to declining inflation. In Asia, Markets rallied on regional economic growth optimism. Investors anticipate tourists from China, who have been under heavy COVID-19 restrictions for three years, will start to travel more as infections recede. According to the United Nations, Chinese tourists made up roughly 20% of global travel demand prior to the pandemic. Considering many of their destinations have tended to focus on Asia, the region is expected to benefit the most. Elsewhere, Oil closed flat while Gold rose 0.25% on a weaker Dollar.
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For anyone following my Platinum Service it made 45 points yesterday and is now ahead by 2713 points for January, after finishing December with a gain of 2054 points. November ended with a gain of 4789 points, while finishing October with a record gain of 9619 points, making 6660 points in September, after closing August with a gain of 2228 points, having made 2660 points in July, following a gain of 3371 points in June. The Service made 3651 points in May, after making 762 points in April, following a gain of 5883 points in March. The Platinum Service made an impressive 5324 points in February, after ending January with a gain of 3878 points, more than making up for December’s 932 points loss. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points. I have a YouTube Channel which contains recent interviews I have given This can be viewed by clicking HERE Please subscribe to this for new interview notification
Equities
The S&P 500 closed 1.19% higher at a price of 4019
The Dow Jones Industrial Average closed 254 points higher for a 0.76% gain at a price of 33,629.
The NASDAQ 100 closed 2.18% higher at a price of 11,872.
The Stoxx Europe 600 Index closed 0.52% higher.
This morning, the MSCI Asia Pacific rose 1.2%.
This morning, the Nikkei closed 1.55% higher at a price of 27,323.
Currencies
The Bloomberg Dollar Spot Index closed 0.1% lower.
The Euro closed 0.1% lower at $1.0849.
The British Pound closed 0.3% lower at 1.2361.
The Japanese Yen fell 0.9% closing at $130.66.
Bonds
Germany’s 10-year yield closed 3 basis points higher at 2.21%.
Britain’s 10-year yield closed 1 basis points lower at 3.36%.
U.S.10 Year Treasury closed 5 basis points higher at 3.53%.
Commodities
West Texas Intermediate crude closed 1.33% higher at $81.40 a barrel.
Gold closed 0.3% lower at $1928.10 an ounce.
This morning on the economic front we have German GFK Consumer Confidence Survey at 7.00 am. This is followed by German, Euro-Zone, U.K. and U.S. Global Manufacturing PMI at 8.55 am, 9.00 am, 9.30 and and 2.45 pm respectively. Finally, we have the Richmond Fed Manufacturing Index at 3.00 pm. the Chicago Fed National Activity Index at 1.30 pm.
Cash S&P 500
The S&P built on Friday’s gains in what turned out to be a volatile trading session. This week is quiet on the Fed speak front as Fed Members are in their blackout period ahead of next week’s FOMC Meeting. We have GDP and PCE on Thursday and Friday and earnings trickling in including Tesla before the big Tech Companies start to report next week. The Fed heading to a slowdown while the ECB purses its aggressive rate hike strategy explains why the Dollar keeps dropping and the Euro rising. The Euro hit a morning high at 1.0925 before falling over 75 points in the afternoon. Two weeks ago, the Euro was trading at 1.0480. This is an enormous move in such a short period of time. As a result, we have seen an easing of Financial conditions in America leading to Friday’s aggressive rally. The Charts are now set up for a further rally if we manage to break above key resistance points above the market. We have initial resistance at 4000 ahead of the key resistance at 4100. A break and close above 4100 for a few days could well see a move to at least 4300. We are now at the stage where Bulls need a breakout for higher prices while Bears need new lows. Next week, will go along way to telling where the major move is. I am still flat the S&P. I will not chase the market much higher from here given the reversal in the Dollar yesterday, raising my buy level to 3968/3983 with a higher 3953 ‘’Closing Stop’’. If I am taken long I will have a T/P level at 3999. With the McClellan Oscillator closing at +212 last night, I will be a small seller of the S&P on any further rally to 4060/4078 with a 4093 ‘’Closing Stop’’. If I am taken short I will have a T/P level at 4043.
EUR/USD
Given the 75 point reversal in the Euro, I will not chase my buy level higher. Therefore, I will continue to be a buyer on any dip lower to 1.0710/1.0780 with a the same 1.0645 ‘’Closing Stop’’.
March Dollar Index
No Change. I am still long at an average rate of 102.10 with the same 101.35 ‘’Closing Stop’’. I will leave my T/P level unchanged at 102.45. If any of the above levels are hit, I will be back with a new update for my Platinum Members.
Cash DAX
I am still flat the DAX as the market again missed my buy level. Although the American Indexes surged since Friday the DAX is struggling to make much headway. I will now lower my buy level to 14800/14880 with a wider 14695 ‘’Closing Stop’’. If I am taken long I will have a T/P level at 14960. I still do not want to be short the DAX at this time.
Cash FTSE
I am still flat the FTSE. The market continues to struggle to rally after rising over 6% this month and has flatlined over the past few sessions. Ahead of Friday, I will now lower my buy level to 7650/7720 with a lower 7595 ‘’Closing Stop’’.
Dow Rolling Contract
Frustratingly, the Dow just missed my initial 33250 buy level before having a nice 450 point rally off its morning lows, hitting a high at 33785. Subsequently we saw some strong profit taking as the Dow fell over 300 points, before regaining some of these lost points in the last 30 minutes of trading. I am still flat. With the McClellan Oscillator closing at +212 last night, I am reluctant to chase the Dow higher. Therefore, I will continue to be a buyer on any dip lower to 33100/33350 with a higher 32895 ‘’Closing Stop’’. I am still expecting a rally first into Spring, possibly extending to the Summer before looking to see if we can get a more Macro Sell setup for a few months. I just want to give you a speculative view from myself but for now it is still a day at a time ahead of next Wednesday’s FOMC Statement and Powell press conference. If I am taken long I will have a T/P level at 33530. I still do not want to be short the Dow at this time.
Cash NASDAQ 100
With the seasonal chart extremely bullish for the next 10 days it is extremely difficult to be short. I expect that the Tech earnings will surprise to the upside next week, thus my bullish stance on the NASDAQ all-month. I am still flat the NDX. I will now raise my buy level to 11550/11700 with a higher 11395 tight ‘’Closing Stop’’. I still do not want to be short the NDX at this time. If I am taken long I will have a T/P level at 11845
March BUND
I am still flat the Bund as the market just fell shy of yesterday’s buy level. The Bund has now fallen 350 points since Thursday, helping Bund Yields to rise above 2.22%. I will now lower my buy level to 136.50/137.20 with a lower 135.75 ‘’Closing Stop’’.
Gold Rolling Contract
No Change. Gold continues to outperform Silver and I am still flat. As I have a large, long Silver position, I will leave my Gold buy level at 1890/1905 with the same 1879 ‘’Closing Stop’’.
Silver Rolling Contract
It took a while but finally Silver rallied to my 24.10 T/P level on my latest 23.65 average long position. Subsequently, Silver sold off, trading the whole of my second buy range for a now 23.40 average long position. I will leave my no stop policy unchanged while lowering my T/P level to 24.05.
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