Technical Analytics Report

Daily Analysis Report 24 Jan '2022

 

The Nasdaq 100 is ringing a bearish bell. Before the FOMC, the US economy slowed.

 

TALKING POINTS FOR THE QQQ NASDAQ 100 ETF, THE S&P 500, THE DOLLAR, AND THE AUD/CAD:

 

Bullish AUDCAD above 0.9075 after BOC.

Bearish QQQ Nasdaq 100 on a further break of 350.

Bearish BTCUSD against 40,000 resistance.

 

The Nasdaq 100 is on track to have its worst month since 2008, while the S&P 500 is trading below its 200-day SMA.

 

A busy event calendar is coming (topped by the FOMC) and a few existential dangers (such as Russia-Ukraine), but mood should come first, not the other way around.

 

A TECHNICAL AND CONVENTIONAL ‘BEAR MARKET’ PRESENTS A SERIOUS RISK:

 

The markets, which have driven the recovery of ‘risk appetite’ since the end of the Great Financial Crisis about 13 years ago, are again signaling major issues for the financial system. The risk of a systemic reversal in sentiment and a technical bear market for speculative benchmarks has increased significantly following this week’s fireworks. Over the coming week, the extraordinarily dense series of scheduled – and lurking unscheduled – event risk adds to the erosion of market enthusiasm. Before we get into the specifics of the fireworks that will erupt, let’s take a look at the overall picture as we enter the new trading week. We will notice a significant amount of risk aversion due to last week’s drop. The Nasdaq 100 ETF, QQQ, has lost -7.5 percent this week, the sharpest drop since March 2020 and the major US index furthest along the formal ‘bear market’ path (a -20 percent retreat from all-time highs). At the start of the new week, examine the QQQ’s immediate range support at 350 (or 14,450 for the underlying Nasdaq 100). After gradually falling range support at 380, then a multi-year trend change floor, sparking the technical decline and plummeting the 200-day SMA, pure chart levels appear to hold a lot less weight. Instead, keep an eye out for the masses’ collective conviction.

 

QQQ Nasdaq 100 ETF Chart with 100 and 200-Day SMAs and Volume (Daily):

Nas100 24 jan

Event risk has the potential to be a significant driver for market volatility and the emergence of major trends. On the other hand, the news isn’t always what drives the market growth. Sentiment can sometimes move on its own, redefining how data inputs and updates are translated into price action. In other words, if markets are usually ‘bearish,’ unfavorable data can add fuel to the fire, while the good news is often missed. This makes it more difficult to just return to the post-pandemic bullish trend, but it doesn’t necessarily stifle the dip-buying efforts with a short attention span. This is exactly the mindset that CFD traders have when it comes to the S&P 500. For the most heated bullish view on record, positioning is over 64% long the damaged index.

 

BREADTH AND MORE FUNDAMENTAL FUEL ARE TWO FACTORS IN FUEL RISK AVERSION:

 

Traders will prefer to use a tactical approach to trading during these transition phases, where significant corrections’ are compared to ‘real reversals.’ In practice, this refers to shorter tenure positions unaffected by a long or short bias. As a result, the scenario will be more critical of setups and consider realistic time frames. At the same time, my current viewpoints are tactical. The status of breadth is one of the most crucial indicators of trend commitment. Over the past trading week, the major US indices have taken a beating. Other worldwide speculative appetite estimates are in varying degrees of commitment. European (e.g., the UK’s FTSE 100) and Asian indices (e.g., Japan’s Nikkei 225) indices have retreated but are not in freefall. Emerging markets, junk bonds, and carry trade are all in the same boat, although they don’t have the same premium level. However, not all measures are equally safe. Through the end of last week, Bitcoin took an especially significant fall. The leading cryptocurrency fell by 10.4 percent on Friday, breaking through a range (head-and-shoulders pattern?) floor of 40,000.

 

 

Bitcoin – BTCUSD Daily Chart with 50-Day Moving Average and 1-Day Rate of Change:

BTCUSD 24 Jan

 

 

While a fire might be a scary thought in the markets, the fuel that feeds or suffocates the threat significantly impacts its risk. The fuel is particularly thick throughout the next week, as it occurs. For the coming week, there are several scheduled and unscheduled concerns to deal with. Growth will be a major topic throughout the week, both thematically and thematically. The main economies’ January PMIs are released on Monday. The IMF issues its WEO economic projection update; on Thursday and Friday, the US and a few major European GDP 4Q data are released. Earnings, on the other hand, have a more evenly dispersed run. Monday is IBM, Tuesday is GE and Microsoft, Wednesday is Intel and Tesla, Thursday is Apple and Robinhood, and Friday is Caterpillar, a blue-chip company. The FOMC rate decision on Wednesday is the top event risk. Though it is not the most aggressive major policy body, its aims appear worldwide.

 

THE WEEK Ahead’S MOST AT-RISK REGIONS/CURRENCIES FOR VOLATILITY:

 

In December, the most recent FOMC rate decision signified a significant shift in the central bank’s policy stance. The group increased its expectations from one rate hike in 2022 to three 25-basis-point increases. Since then, the outlook has become even more hawkish, with Fed officials attempting to prepare the market for a further escalation at the upcoming meeting. The range has shifted sharply upward, with the most dovish members lifting the floor on expectations to three rises this year earlier this month. This will almost certainly be reflected in the rate announcement and press conference on January 26th. However, this is not one of the revisions that will be included in official forecast updates. As a result, the market will continue to interpret and price things as usual. Fed Funds futures were pricing in a strong possibility of four rate hikes in 2022 as of Friday, with the first move expected in March. The Dollar is at risk of falling if that outlook deteriorates and/or risk trends deteriorate. It is now more commonly used as a carry and risk currency.

 

DXY Dollar Index Chart with Implied Fed Rate Change in 2022 and 20, 60-Day Correl (Daily):

DXY Jan 24

There is a lot to take in a while looking at the US docket, and it all competes for our attention. Not only do we have the FOMC rate decision on Wednesday. The US PMI is released on Monday, the Conference Board Consumer Confidence survey is released on Tuesday, the policy announcement is released on Wednesday, the 4Q GDP is released on Thursday, and the PCE deflator (the Fed’s preferred inflation indicator) is released on Friday. As a result, the market may struggle to define a distinct trend against a loud underlying backdrop. In contrast, the Canadian docket is dominated by a single, major fundamental event: the Bank of Canada (BOC) rate decision. Rate estimates peaked at six rate hikes in 2022, which was considerably more aggressive than the Fed. The Canadian Dollar, in particular, suffers as a result.