Consumers and Inflation
Consumers and Inflation
Will consumer spending pull back before the Fed comes in stronger with the rate hikes?
Walmart and other retailers continue to brace for a consumer spending pullback while consumers are seemingly ignoring analysts’ warnings and spending more. In spite of all the doom and gloom chatter going on all around us, consumers continue to spend money as noted by last week’s PCE release that came in at 4.7%, which is 0.1% higher than the previous month’s and 0.4% higher than expectations of 4.3%. This, combined with last month’s jobs surprise to the upside, has analysts concerned that the Fed will raise rates 50 bps at next month’s meeting, instead of another 25 bps. The CME Fedwatch Tool currently shows a 72.3% chance of the latter and only a 27.7% chance of the former, however.
As a trader, when we are looking at points on a chart, there is a saying which goes “one touch is just a point, two touches is a line, and three touches is a trend.” What that means is that, as traders, we look for trends to signal higher-confidence trading opportunities. And since trends are what we look for as traders, anything else is of little consequence. So, we don’t worry about a single touch or two.
We can use the same logic for PCE data, noting that only a single rise (and such a small one at that) is not something to necessarily become overly-concerned about. As the markets tend to show us, time and again, price never moves in a straight line; it is full of pullbacks along the way. PCE has been trending down since it peaked at 5.3% in February 2022. While it did show a rise from June of 2022 through October of 2022, that rise terminated at 5.2% and fell to 4.6% by January 2022. (PCE Chart) As I said, it has trended downward for a year now.
The US Dollar (DXY)
The dollar continues to strain higher while it remains overbought in the daily Stoch RSI. Daily RSI is nearing overbought as well. The DXY has hit the initial blue supply structure EQ resistance. Breaking out higher will give us the larger blue supply structure EQ as a target at ~106.631. We need to watch how this week’s candle ends. Last week’s candle broke out above the weekly pivot, so a breakdown back below that pivot this week would nullify that rally.
Bitcoin Futures (BTC1!)
Bitcoin futures rallied into the significant S/R flip at the horizontal purple line. Breaking out impulsively above that level should signal that the bottom is likely in. We can note that it sits just prior to the weekly pivot.
I have provided the count I believe price is likely to mimic if we get that impulsive breakout higher from here. It would give us an overextended wave ((v)) of 3. Wave 4 would, then, pull back to the weekly pivot area. A rejection there should see wave 5 of (1) rallying into the weekly R1 pivot area. That will set the stage for wave (2) to pull back to the weekly pivot before price is sent higher in wave (3), breaking out above the wave (1) extreme.
However, continued pullback from here that drops below wave ((iv)) will signal that wave (1) may actually be complete at the purple line. And that would give us an initial pullback target of the lower area of the orange target range, followed by the ~19090 level.
S&P E-Mini Futures (ES1!)
It looks like the pullback last year has completed and a new bull rally has begun. Breaking out above wave B resistance at 4327.50 will add confidence to the count. Locally, the E-Minis pulled back 61.8% in three waves. Breaking out above wave (b) at 4186.50 will signal that wave ((iii)) is in progress toward an initial target of 4635 or secondary target of 4795.75.
However, breaking down below wave 2 at 3788.50, instead, will require an adjustment to the count. And that may indicate that the bottom is not in.
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