Deceleration remains the name of the game
When it comes to the Fed, PCEPI > CPI
The personal consumption expenditures price index’s (PCEPI) latest release came in Friday. December 23rd, and, what should be little surprise, it shows the same thing we are seeing everywhere else - deceleration of inflation. Specifically, the MoM print was almost flat at a 0.1% increase, down from the previous MoM increase of 0.4%. While we saw a 5.5% increase YoY, which was a noticeable decrease over October’s revised 6.1% increase. Even more importantly, this YoY increase was the smallest gain we’ve seen since October of last year. The core inflation print was similar, rising only 4.7% YoY which was also the smallest increase cince that same October.
What you may not know, however, is that the Fed has watched this number with greater interest than the CPI since 2012. Why are the CPI and PCEPI different though? The CPI gives rents twice as much weight as the PCEPI, but that’s just the beginning. From Investopedia:
Why does the Fed prefer the PCE Price Index? This metric is composed of a broad range of expenditures. The PCEPI is also weighted by data acquired through business surveys, which tend to be more reliable than the consumer surveys used by the CPI.
The CPI, on the other hand, provides more granular transparency in its monthly reporting. Economists studying the data can clearly see categories like cereal, fruit, apparel, and vehicles.
Another difference between the PCEPI and CPI is that the PCEPI uses a formula that allows for changes in consumer behavior and changes that occur in the short term. These adjustments are not made in the CPI formula.
These factors result in a more comprehensive measure of inflation. The Federal Reserve depends on the nuances that the PCEPI reveals because even minimal inflation can be considered an indicator of a growing economy.
So even though media continues screaming CPI, you should be paying attention to the Fed’s preferred inflation guage - PCEPI. And, in either case, you should be noting the deceleration from this year’s peak in both of them, rather than waiting for the Fed to pivot.
The US Dollar (DXY)
There is little change from last week. The DXY has been consolidating just prior to the daily S1 pivot, since the previous newsletter. It has gapped down today, to start the week. But the daily pivots will change next Monday as we bring in the new year. The ~101/102 handle is still looking more likely than not at this time.
Bitcoin Liquid Index (BLX)
For this week’s Bitcoin analysis, we will use the Bitcoin Liquid Index (BLX) chart which gives us the full life cycle of Bitcoin so far. Borrowing a bit of information from W.D. Gann, we can note that price first found support around the 50% retracement of the ATH to the ATL. This is known as the G2 level. The G1 level is the 50% retracement from the ATH to 0. Since Bitcoin’s ATL is 0.01, the difference is insignificant, so I have left the G1 level off this chart. I have also left the G3 level off this chart for the same reason as it is the 75% retracement from the ATH to 0. But I have noted the G4 level which is the 75% retracement level from the ATH to the ATL. You should be noticing that price is currently hovering around that G4 level. Does this mean anything? We will see, but you should be aware the price actually retraced just shy of 85.4% to mark the 2018 bear market low and just beyond 85.4% to mark the 2015 bear market low. Prior to that, the 2013 bear market low was set at the 75% retracment, and the 2011 low printed just beyond the 90% retracement level. Currently, price has bounced at the local large green demand structure’s EQ, but further breakdown below it has the next green demand structure’s EQ sitting just shy of the 85.4% retracement level.
More importantly, I believe, is the noted weekly candle. This is the same one I discussed in last week’s newsletter but in the CME Bitcoin futures chart. The same principle applies, however, which is that a breakout above that candle’s high will be quite bullish. This is due to price being unable to follow through below the November low after printing that particular very bearish candle at the December high. The inability to follow-through lower after such a candle means that supply is fatigued.
Litecoin (LTC/USD)
Litecoin continues to look interesting on the monthly chart. Price has been range bound on this large TF since the December 2017 ATH. The overlapping small candle price action since the May 2021, combined with the decreasing volume, suggest that pullback is corrective. We can note an impulsive breakout above the descending channel’s EQ. Breaking out impulsively above the descending channel’s resistance should have price targeting the ~351 handle, just shy of the range resistance. If a blow-off top in the cryptocurrency market is still in the cards, then a 2545 target wouldn’t be out of the question at all.
Tesla (TLSA)
An update on last week’s TSLA analysis. Price broke down below the blue structure’s EQ which initiated the target of the green structure’s EQ at the ~118 handle. The daily is well-oversold at this point with the Stoch RSI bottomed out in oversold for the past week. A reversal from that area would have me looking toward the ~180/90 area initiallly.
The Cubes (QQQ)
This is the fifth most-popular ETF in the world and it tracks the Nasdaq 100 index. That means it is a narrow portion of the overall stock market. But because it is made up of the most valuable stocks found on the Nasdaq, it is extremely tech heavy. For an updated listing of the ETF’s holdings, sector allocations, and more be sure to check out the Invesco QQQ website.
The daily chart looks good for a new higher local high. If we see a break out above the 274.78 swing high, then that will have me looking for a target of the ~310.60 area.
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The following is a guest article submitted by our friend and fellow veteran trader FiboSwanny:
Fibliminal Thinking. Create the charts you want by challenging your convictions
3 principles -
Principle 2. Aspire more understanding
An open mind (heart) is the path to enduring growth… and the best answers come from the best questions!
Let’s state the obvious: For change to occur, we have to be open to it. And yet most people are not. We tend to get rather stuck in our own ways. As Mark Twain said, “I’m in favor of progress; it’s change I don’t like.” My own experience is that people change when they’re ready (or when certain conditions force their hand).
However, assuming we are ready to grow, the formula for growth in any aspect of our lives (trading, personal, or “other”) requires two main items, awareness and action. We have to understand more, and then we have to act on it. It’s not enough to just read an article, or to just read a book. The notes we take are generally not enough. Unless we truly understand something, and then work at it, we’re not going to get better. This holds true for trading, business, personal, or anything else we aspire to do. It may sound simple in theory, but practice is another thing. To open our minds, we have to get past our self-imposed limits, fears, and biases.
We have to question everything.
If we want to get better, we will have to prove that we can do better. That’s when we will believe it. That’s when our self-image changes. That’s when we start acting differently because we are different, because that’s who we now are. Awareness is the ability to perceive what is going on, or not going on, in the world around us. Awareness is about paying attention, and it pertains to both the conscious and subconscious realms.
Paying attention is proactive. It is a conscious act that expands our consciousness. Attention fosters awareness, and expanded awareness is our springboard to elevated understanding and growth. True attention entails looking, listening and learning without prejudice. Conversely, restricted awareness translates to limited information and diminished understanding, which leads to unnecessary mistakes or even worse.
This is a journey of self-discovery. It is not just an intellectual exercise. Therefore, we must go and listen and feel wherever and however we can. We must sense and confront our biases if we are to be open and grow. And if we allow ourselves to be fascinated, learning comes more easily.
I seek out others that are humble and willing to learn as much as I like to teach.
Final Thoughts
Inflation data continues to show deceleration. Notably, the Fed’s preferred inflation gauge, the PCEPI, was just about flat MoM, barely nothching a 0.1% rise in Friday’s release. So, as mentioned previously, the next few months should be interesting, to say the least. With market participants expecting a strong drop, anything that deviates from that will likely lead into a rally. It’s our job as traders to remain open to direction and ready to take advantage of movement that’s unexpected by the market participants.
For its part, the cryptocurrency market continues to hold up well in spite of everything that is happening inside and out of that market. Bitcoin’s price is nearing two months of sideways price action and remains in the top half of that range for now. Will we see a Santa Claus rally into the new year? Well, price is attempting to rally locally but needs to show much more impulsiveness. A strong Bitcoin tends to generally carry the cryptocurrency market higher. Very few traders actually make and keep wealth trading shit coins, but most traders attempt to do so as they are looking to “get rich quick.” I prefer to trade the larger cap cryptos like Bitcoin, Ethereum, Matic, and Dot, for example. Remember, risk is not just in the trade, itself, but also in the market you trade in, what exchange/broker you use, as well as what you are trading. For those in the cryptocurrency space, this past year should have made that point loud and clear.
Ultimately, the dollar remains the barometer so traders should be watching it. Further decline will continue to take the downward price pressure off risk assets. That, alone, does not mean that they will rally but they will be in a much better position to do so at the very least
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