Preview for the week of Jan 29 – Feb 2 2024 ( Convergence of 4 Big events, 5 of Mag 7 earnings, Fed meeting, Quarterly refunding announcement, Non-farm payroll )
This is a huge week.
Most of what I have done so far from 2H 2023 till now came from the Information edges that I acquired&synthesize from past experiences and current best up-to-date market knowledge, but it is at this week that I regrettably have to say my information edge has been rendered unusable ( which coincidentally is happening to most big institutions as well , as evident in the many Bloomberg charts that I have came across, there are just far too many anxieties and anomaly in the volatility charts. ) Technically speaking, charts are overbought and divergence in momentum are present, this is never a good time to have any significant exposure to the market.
Why is Jan 29 – Feb 2 such a huge week for the market ? Because there are several big events converging from Tuesday onwards,
Tuesday: Microsoft, AMD, Google earnings
Wednesday : Fed meeting and Quarterly refunding announcement
Thursday : Apple, Amazon, Meta earnings
Friday : Non-farm payroll
You are meddling with forces beyond our comprehension is what I would say to anyone thinking of doing any short term trading this week.
There are just too many variables and moving part, most big players have scaled back their bets and positioning, which can be seen from trading volume. ( NYSE volume drop on Friday, which is 22 - 25 % lower than previous week )
Market will likely have wild swing and your stops will be triggered by the volatility post QRA press conference and post Fed meeting. Or the range will contract and resolve initially in a seeming directional, only to find out it’s head fake movement and it goes the other way. ( for example , Spike up after everything resolve in a bullish manner, only to face buyer exhaustion and got slam back down next week )
As the famous song goes,
“You've got to know when to hold 'em, know when to fold 'em,
Know when to walk away, know when to run.”
It’s better to react rather than front run the policy, even big guy is not front running, which is evident in range contraction in price range for the past several days. This shows how huge this week is.( nobody has an edge this week, I repeat NOBODY ). I bet even some of the best guys may need some time to digest everything and come to a conclusion by probably early next week.
My plan for this week
1) Standing pat and not opening any new trade
2) Keeping only the best among the best stock holdings ( great upside earnings surprise, those with huge gap-up and continue follow through post earning announcement )
3) Staying hedge with my long term Indices ETF
Earnings week Jan 29 - Feb 2 2024
5 of the Mag 7 are announcing earnings, My expectations are that ( I am not buying any this week ),
1) Microsoft earnings will be responded positively by market
2) Apple earnings will be responded negatively by market
3) No ideas for the other 3
Fed meeting 31 Jan
Journalist will be asking if Fed is thinking about “ thinking about Interest rate cut “. It will be a communication challenge for Fed chair powell in the press onference, as he will be asked on various aspect of consideration ( soft-hard landing, number of rate hikes, inflation …etc ), so everything that he utter in the press conference will be assess in totality before market give a thumbs up or thumbs down.
Currently , Market is pricing in about 50% rate cut, down from 70%
And according to Taylor’s rules , fed should start cutting rates.( question is when will they and by how many, is it a recessionary cut or soft landing cut ? )
If fed do cut in march, then it will be line with their past average history of cutting for first time 8 months after last rate hike.
Quarterly refunding announcement (QRA)
In the previous 2 Quarterly refunding announcement, the subsequent market impact created 2 market turning point. July 31st and 1st Nov .
As shown in chart above, market reverse from a high in July 31 and market reverse from Oct 27 low on 1st November.
Nobody has slightest hint on what to expect on this front, so we can only react to the policy rather than front run the policy.
Non-farm payroll
It maybe market moving or it maybe not. My base case guess is that it will be overshadowed by the Fed policy and QRA.
Bitcoin
Fail breakout (upside breakout ) indicates professional selling pressure and is bearish near-term, the following is happening currently
1)20D MA cross below 50D MA and price is bounded by 20D MA so far
2)breach sub 40K support ( previous low )
market bounced from 38.5K low, and so far it has not exceed previous week high of 43.5K, therefore market is still mired at short-term downtrend.
I have came across an interesting chart denoting the market near term trend post major milestones for Bitcoin
Market traded lower every single time after major event, Bitcoin Futures approval (red Line) , Coinbase IPO (Green Line), Spot Bitcoin ETF approval (Orange/beige Line).
To emphasize again, I will be standing pat and watching the charts ( dollar charts, 10Y yield and many others )
As always, we will continue to monitor the charts ( only monitor for this week ), assess the bullish/bearish evidence day-by-day to make appropriate capital allocation and investment decisions.
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