Are we in a bear market? Potentially. Are we still correcting the 2020-2021 bull market? Yes. Is this week’s price action bullish? Yes. Some traders are caught on both sides currently. The triple witching often sees double the amount of volume come into the markets as traders rollover from one contract to the next. The triple witching refers to the expiry of Stock Options, Index Options, and Index Futures.
The London close has seen a major reversal in fortunes for the major indices as the markets which are currently open have all ended green for the day. The S&P500 is up nearly 1% today but up 5.22% for the week. The current price is above the highs of the previous 3 weeks, the weekly 50 EMA and closing in on the weekly 20 EMA. It looks like we’re going to park it in the middle of the weekly balance that was printed at the end of January and the first week of February, where some bears will be keen to add to or get in on a short. Whether they survive is another question. 4500 will be a battle next week but there are not many scheduled Tier-1 news events to act as a bull or bear catalyst.
Going the other way is crude oil. The Brent contract is back inside last week’s range, but it has been red for most of the week. The Iranian talks are likely to move into next week and if there is a positive tone coming from them, we should see oil once again breaking weekly lows. The bullish scenario is that there is no resolution to the Iranian talks but something good and peaceful happens in Ukraine.
We have heard from a few Fed speakers today, Federal Reserve Bank of St. Louis President James Bullard stated that he recommended at the recently held Federal Open Market Committee (FOMC) meeting that the central bank should "try to achieve a level of the policy rate above 3%" in 2022. Bullard suggested instead that a 0.5 percentage point increase and "implementing a plan for reducing the size of the Fed's balance sheet would have been more appropriate actions."
President of the Federal Reserve Bank of Minneapolis, Neel Kashkari, estimated that the Fed's key interest rates would reach around 1.75-2% by the end of 2022.
Federal Reserve Board of Governors Member Christopher Waller said that he prefers greater interest rate hikes and that he would be in favour of raises of "50 basis points at one or multiple meetings in the near future”. He went on to say “Inflation is raging. So, we’re in a position where we could draw down a large amount of liquidity out of the system without really doing much damage."
No sign of a walk back from the higher rates announced within the Fed’s economic projections.
The TLT which is indicative of the long bond rose this week, which means the yields dropped as the short-term interest rates went higher, further flattening the yield curve. A flat or inverted curve is and has been a very bad indicator for what happens next in the stock markets.
Increasing interest rates and a possible reduction in energy prices could lead to softer inflation, pushing down the prices of precious metals such as silver and gold today, extending weekly losses as both precious metals declined over 2.5% in the past week. The London Metal Exchange is not having a good time this week once again as all of the agreed Nickel trades during today’s session will be null and void. They released a statement saying the LME will increase daily price limits in Nickel to 15% as of Monday next week.
Reports of advancements in the Russia-Ukraine peace negotiations and China's non-confrontational rhetoric regarding the conflict in Europe are thought to have contributed to the lower appetite for safe-haven assets. Both Biden and Xi said that their 2-hour conversation was constructive. Xi said that conflicts are of no use to anyone. Especially him. He is up for a 3rd term election and any destabilisation or a foot wrong could see his opponents make a move.
Canadian retail sales came in at 3.2% and better than the expected 2.4%. Their house prices also rose the most in9-months by 1.1%.
The USDCAD is in a very large wedge chart pattern, which is nearing the apex. Chartists would have preferred to see the breakdown already happen, so I am expecting a possible sweep of the lows before a pop up out the other side. EMA momentum is clearly sideways, but price action is lower than the 3 averages.