Rate Cut Hopes Fuel Market Rally
Tech is showing weakness, there are gaps left behind in SPX, Small Caps are roaring, which one is signaling the next move? Key elements to watch ahead of NVDA earnings.
Soft consolidation/landing for the rocket ship?
The technical setups shared last week were proven true, price action is primal and the impulsive move that began two weeks ago is now consolidating, slowing its pace.
As published last week, the setup for SPX was eyeing $5664, and the high of the week was shy only by $20 bucks or 0.35%; TLT continued to rise, and DXY continued to fall, as each chart indicated.
IWM remained above $210, confirming its bullish setup. Once again, weekly charts have shown their effectiveness in filtering out daily noise and volatility (The daily was bearish for IWM last week).
Tech mega caps like Google, Meta, and Microsoft presented weak setups last week, and that weakness continues. Other tech mega-cap has joined the weakness. And NVDA and TSLA had both bullish continuation as expected.
That said, Tech giants show mixed signals. This edition will analyze specific levels for these stocks, including NDX, which has a positive outlook but is less strong than other indexes. DAX, Nikkei and Bitcoin had bullish continuation and the key levels mentioned last week were conquered. GDX and silver continued roaring as the charts suggested.
Technical analysis is more important than sentiment. There was much discussion and fear about the Jackson Hole speech, but sentiment often works as a contrarian indicator.
Macro:
Fed Chair Jerome Powell set the stage for potential interest rate reductions in the future, though he did not specify when or how much these cuts might occur. “It's time for policy adjustments,” he stated during his speech at the Fed's annual gathering in Jackson Hole, Wyoming.
He noted that the timing and extent of rate decreases will be influenced by incoming economic data, changing forecasts, and risk assessments.
He recognized the progress made in controlling inflation and indicated that the Fed could now simultaneously focus on achieving its other mandate—ensuring the economy maintains full employment. “Inflation has significantly reduced. The labor market is no longer excessively heated, and conditions are now less strict than prior to the pandemic,” Powell explained. “Supply issues have stabilized, and the risks related to our two objectives have changed.”
He acknowledged that the unemployment rate has steadily increased, now standing at 4.3%, which would typically signal an impending recession. Yet, Powell attributed this uptick in unemployment to more people joining the workforce and a slower rate of hiring, rather than an increase in layoffs or a general deterioration of the job market.
We all remember when he stated that “Inflation is transitory”, today he mentioned “Our goal has been to bring back price stability while preserving a robust labor market, avoiding the sharp rises in unemployment that have been seen in previous disinflationary periods,”.
Last Wednesday, in the special study about rate cuts and rate hikes, my expectation/target for SPX was shared, more details are mentioned in this edition.
SPX