Market Update 4/4/2024
Latest recap:
Fed Chair Powell Stands To His Dovish Tone
Rates/Gold/Oil up, Bitcoin consolidating, USD down
Market Sentiment: Bullish but less risk appetite
S&P 500 Levels - S: 5260 or 20MA; R: 5323 or 10MA
MY BULL/BEAR RATIO: NEUTRAL BIAS
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Fed Chair Powell Stands To His Dovish Tone
Economic data updates are rolling in after the March Fed meeting, yet they seem to be of little consequence...
The commander of U.S. monetary policy, Fed Chair Jerome Powell, who has consistently emphasized the importance of real-time data in shaping decisions, now appears to overlook this data. Speaking at Stanford's Business Forum yesterday, he echoed the dovish (equating to bullish in market terms) rhetoric from the March Fed meeting, with a slight new twist. He noted, “the recent data do not, however, materially change the overall picture.”
This means that despite recent inflation indicators (CPI, PPI, and partly Core PCE) coming in above expectations, and updates this week showing a hotter-than-anticipated ISM Manufacturing PMI, robust private non-farm payroll report, and strong JOLTS Job openings, they seemingly had no impact.
Following his own guideline of data-driven decision-making, Powell should be adjusting the Fed's rate-cut projection, which wouldn’t bode well for the markets. However, he’s not doing this. His speech made it clear: he’s aware of the potential skew in job-related data due to it being an election year. Additionally, he seems wary of the stock market's reaction; a change in his stance could trigger immediate negative responses, potentially causing significant damage. Hence, his continued dovish stance, which the markets, for the moment, appreciated.
The looming question now is: Will this sentiment endure, or will traders eventually discern that it was all a facade?
Rates/Gold/Oil up, Bitcoin consolidating, USD down
Fed Chair Powell’s dovish stance on rate-cutting continues to buoy the markets, especially AI stocks, following his remarks on the significant future role of AI in the economy during a Q&A session.
While Powell's meetings seem to regularly boost stock markets, it’s essential to delve beneath the surface to grasp the underlying dynamics. Given the questionable reliability of economic updates in driving market trends, we need to focus on key market indicators for a more accurate picture.
Inflation: To gauge the current state of inflation, observe the 10-year rate, gold, and oil prices. Their significant rise signals a resurgence in inflation.
Liquidity: Bitcoin and the Reverse Repo Market offer insights into liquidity levels. The relationship is straightforward: more liquidity boosts Bitcoin prices and reduces reverse repo balances, while less liquidity lowers Bitcoin prices and increases reverse repo balances. Bitcoin's price has surged by 300% in the last four months and is now consolidating, while the reverse repo balance has decreased by about 38% from $705 billion to $437 billion. This suggests that substantial liquidity has been injected back into the system, fueling inflationary pressures.
Financial Conditions Tightening: In a quantitative tightening scenario, where lending is restricted, a stronger national currency is expected, in this case, the USD. The recent slump in the USD, after a period of strength, following the last three trading sessions indicates a loosening of financial conditions, aligning with the observed inflationary trends. However, it's unclear if this is a temporary shift.
The focal point of this week is March's substantial payrolls report due on Friday. The trends observed in these market indicators could signal a short-term continuation of inflation and tightening financial conditions.
Market Sentiment
The mood in the markets is becoming gloomier. Traders are getting more cautious rather than blindly buying dips.
Live S&P500 Futures - Pre-Market Analysis
Since the market topped on April 1st, it has overally trendend down as of today. The big question now is if this is short lived so that we will see it going up again to new ATHs or will there be a severe but long overdue pullback coming now?
The current price is still in the range between 5260 and 5323 which is certainly not a bearish thing by itself. However, the daily 10MA turns out to be a string resistance now while the 20MA turns out to be a strong support.
Nothing of that can tell us for today where the markets might be moving. But lets go with this scenario: As soon as we do not see the price either breaking through the 10MA resistance (bullish) or breaking through 20MA support (bearish), there is no clear signal for the S&P500 today.
Warning remains despite ATHs!
The bearish shift is imminent due to seven BEARISH factors conditions:
Wall Streets initial price targets for 2024 have already been achieved!
Market cycle is at extreme euphoria!
Tightening of market conditions by raising rates, oil and the USD
Sharebuyback blackout period until the end of April
Bank of Japan’s ended in March the decade long zero interest rate policy
Regional banking crisis in the US imminent again!
Geopolitical shock events that could cause sudden turmoil
Levels to watch S: 5260 or 20MA; R: 5323 or 10MA, BLOW-OFF TOP 2024: 6136
Pro Bullish:
New ALL-TIME-HIGHs!Bullish momentumAbove the daily 20MA, 50MA, 100MA, 200MA
Above the weekly 10MA, 20MA, 50MA, 100MA, 200MA
Above the monthly 10MA, 20MA, 50MA, 100MA, 200MA
10/20MA daily goldencross
20/50MA daily goldencross
20/100MA daily goldencross
50/100MA weekly goldencross
Strong Fourth Quarter of 2023
Strong First Quarter of 2024
Strong January Month of 2024
Strong February Month of 2024
Strong March Month of 2024
Price Target: 5,100-5,200 ACHIEVED (Wall Street Consensus for 2024!)
NEW Price Target: 5,500 (Oppenheimer Wall Street Bank March Update)
Blow-Off Top: 6,136
Pro Bearish:
Market at risk to roll over
Bullish momentum stalling
Wall Street’s 5100 price target for the year 2024 already achieved!
Wall Street’s 5200 price target for the year 2024 already achieved!
Market Sentiment at EUPHORIA level
Below the daily 10MA
Below the daily 20MAWeakening bullish momentum / Bearish momentum likely
Potential bearish head and shoulders pattern forming
Geopolitical Risk: Middle East Crisis / Ukraine Crisis
Currency Risk: Japan’s Yen Currency, US-Dollar crisis looming
MY BULL/BEAR RATIO: NEUTRAL BIAS
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