"New Year, New Me" for Markets or...
"New Year, New Me" for Markets or...
Shorter-term profits > swinging for the fences
Well, folks, 2022 is, as they say, history. Some of the worst returns over the past year include SNAP 0.00%↑ which closed the year at -81%, AMC 0.00%↑ at -76%, SHOP 0.00%↑ at -75%, and SPOT 0.00%↑ and TEAM 0.00%↑ at -66%. Some of the largest companies that people have been following are TSLA 0.00%↑ which ended at -65%, META 0.00%↑ at 64%, NFLX 0.00%↑ at -51%, and AMZN 0.00%↑ at -50%.
That’s a hard year of downside for market participants as the DOW 0.00%↑ finished the year down only 9% while the tech-heavy S&P 500 was down 20%, and the heaviest tech index, Nasdaq Composite Index, led the fall with a 33% loss for the year. Bitcoin didn’t fair any better, closing the year down 60% as Ethereum lost 68%. All-in-all, the cryptocurrency market cap shed $1.4 trillion in 2022, dropping to $800 billion from $2.2 trillion at the beginning of the year.
What does this mean for us? It means one of two things: 1) either the 2022 decline is the warning that a much larger, more significant, decline is coming, or 2) bearishness is at an extreme indicating that the decline is complete and a reversal has occurred or is in progress.
With the Dow having broken out above it’s mid-August swing high, there remains the possibility that a new all-time high is incoming. If the S&P and Nasdaq follow along and do the same thing, which is certainly quite possible considering the degree of decline seen by so many of the tech names that make up their indexes, it would confirm the Dow’s breakout and add a lot of support to that new all-time high narrative.
A Thread A Day in January
I’ve committed to writing a thread a day about all things trading, success, and life for y’all in January. I will do my best to make sure they’re informative and as helpful as possible in getting your head where it needs to be. Here is my most recent thread:
The US Dollar (DXY)
The local consolidation near the low that we have been watching for the past few weeks finally broke down with the DXY now trying to find support at that low. The DXY has come in sideways between the daily pivot and S1 pivot.
As mentioned in previous newsletters, my initial target is the 101/02 area which would take the DXY down to that S1 pivot area. The daily Stoch RSI has fallen out of overbought and crossed bearishly. Daily RSI, which has been hovering just above oversold since November 11th, looks likely to finally breakdown into oversold. This keeps the initial target of the 101/102 handle alive.
The weekly chart also highlights my next lower target area as likely if the DXY can break down below the large HVN at ~96/97. Doing so will give us a target of the weekly S1 pivot at the ~93/94 area.
Bitcoin Liquid Index (BLX)
Not a whole lot has changed with Bitcoin over the past week. We had the very bearish inverted hammer candle that printed at the swing high of the previous rally on the week of December 12th. But there has been very little follow-through lower. As a matter of fact, three weeks later price remains above the subsequent swing low of 16324.59 that printed the next week. So, the big picture remains clear: price needs to clear that swing high at 18354.77, followed by 25198.61 to break the bearish market structure off the all-time high. The current low sits at significant monthly support as does the local December low.
CBOE 10 YR Treasury Note Yield (TNX)
As shown above, the 10 Yr Treasury Note Yield broke out above the 40+ year descending resistance. We can also note that it ran the monthly R5 pivot. This usually indicates a top is in place.
The daily suggests that the counter-trend rally is complete at the previous month’s daily pivot. That will give us a local target of the ascending solid black line.
Breaking down below that solid black mid-range Schiff Pitchfork line will give us a target of the descending red resistance. Further breakdown below that red line will give us a target of the pitchfork’s ascending blue support line. If the yield is dropping, then we should expect the bond’s price to rally and that coincides with interest rates dropping.
This would be in-line with inflation continuing to drop as we have seen and the Fed’s potential deceleration in rate hikes. Remember, the Fed only raised interest rates 50 bps in December, after raising it 75 bps at every meeting since the beginning of the summer. As I have discussed previously, there is a good chance we will see further deceleration with the Fed raising rates only 25 bps in February. But it’s too early to know for sure at this time. This Friday’s NFP jobs report is expected to show a gain of 200K jobs which would be a continued deceleration while unemployment is expected to stay at 3.7%. Following that, the CPI will be released on January 12th. While the CPI is the most publicized inflation data, the Fed actually watches the PCEPI which, if the most recent Survey of Professional Forecasters is correct, is expected to show a quick slowdown from 5.9% last year to 2.9% this year. The Peterson Institute for International Economics shines some light on the likelihood of the labor market cooling off this year (following the deceleration that we’ve already seen in job growth after peaking in the first half of 2022), as well as the expectation that “prices are likely to rise less than wages.”
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The following is a guest article submitted by our friend and fellow veteran trader FiboSwanny (please be aware that his Twitter account was just hacked, so don’t follow any of the links to giveaways on his page):
Fibliminal Thinking. Create the charts to challenge your convictions
3 principles -
Principle 3. Accomplish something different
Change is inevitable.
It’s what life is all about.
Many changes unfold naturally as life moves forward. Some changes appear right in front of us, some from left field, and others beyond our control. But there are many things in life that we can initiate on our own. We can take an active role in creating a particular outcome or goal, and in large part, we can determine the kind of life we want and choose to live.
I’m sure many have tangled with an idea about what we want to do, something we want to accomplish that we feel will somehow make a big difference in our life. Maybe we’ve even gone as far as setting our sights and taking some action toward achieving this change. For many of us, what may initially come to mind when thinking of a significant change is the idea of breaking unhealthy habits, like losing weight and/or stopping smoking are great challenges for many, often a lot more frustrating and harder to conquer than one can imagine.
However, the change or the goal we wish to make could be many other things: creating a more satisfactory, fulfilling and balanced lifestyle, doing the work we love to do, living in a place that resonates best with who we are, or (like me) changing how I approached charting and trading the markets.
Over the years I wanted to accomplish something different with my charting and trading. I studied the charts and went down the rabbit hole of Fibonacci many years ago. I read many books on psychology, which spurred my thinking to pave a way to apply Fibonacci aspects to measure the social mood psychology of the market. I accomplished a new way to look at some simple indicators to help determine psychological changes.
I authored what I call Fibonacci Threshold Theory.
This is how I accomplished something different.
What will you set your sights on?
Final Thoughts
The past year saw large draw downs in tech stocks and cryptocurrencies which should suggest a counter-trend rally at least. META 0.00%↑ started its own in November, TSLA 0.00%↑ started more recently, and others are joining in as well. With the NFP release coming Friday, and the PCEPI coming later this month, on January 27th, there's a lot of economic information that could convince the Fed to only raise interest rates by 25 bps in February. We are seeing the 10 yr yield stretched quite far, but need to see further pullback to suggest that it may have topped out.
So, as always, there are numerous moving parts. But they may be signaling in confluence that a reversal in the markets will be coming this year. And that would leave many participants frozen in place, fearful to join in on the rally because they were so sure that the decline would continue. This could see the markets take off as the previous year’s decline wiped out a lot of supply, leaving much less to impede that upward movement. Until we see the S&P and Nasdaq confirming the Dow’s breakout above the mid-August swing high, however, traders need to be mindful of continuation lower.
My advice to traders is to keep your time frames smaller than you would in a clear bull market so that you can focus on locking in profit rather than swinging for the fences. There’s a lot of money to be made in either direction; you just need to be aware enough to get in and out when appropriate.
My Streaming Schedule
I stream simultaneously on youtube.com/texaswestcapital, twitch.tv/texaswestcapital, and twitter.com/txwestcapital on Tuesdays and Fridays at 11:00 a.m. CST. I’d love for you to stop in and share your thoughts about the charts. We usually look at everything from Bitcoin to stock indexes, Forex to precious metals, oil and gas to individual stocks and crypto pairs as well as the DXY. And of course I do my best to explain the macro events and what they likely mean, which is often different than the usual large social media influencer accounts.