Briefing 1/16/23 – The Forecast

Briefing 1/16/23

Briefing 1/16/23

SPX now faces resistance at its bear market trend line and upside is likely limited from current levels.  By Thursday, the market’s next peak can form.  This week, a host of Fed members will speak on their expectations of the economy and the rate-hiking cycle.  In addition to their discourse, earnings will dominate trading as well.  In regards to the broader perspective, we still expect more selling to come to the major indexes as high rates, inflation, and slow growth take their toll on the market.  However, we expect a powerful rally from May onwards during 2023.  Once this most widely anticipated recession is declared to have finally arrived, it will at that point likely be over as stocks start to rebound.

Active Model Position:  SPXS (Short S&P 500)

Short term thoughts (Dow, S&P 500, and Nasdaq):

Tuesday:  60% probability of sell-off

Wednesday – Thursday:  70% chance of rally and peak

Intermediate term thoughts (Dow, S&P 500, and Nasdaq):

Final bear market low occurring at 3,000 – 3,400 SPX during Q1-Q2, 2023

Long term thoughts (Dow, S&P 500, and Nasdaq):

Recession 2023 – 2025, bull market 2025 – 2031

Last Week’s Economic Data:

Core CPI:  On target

CPI (YoY):  On target

CPI (MoM):  Miss 

Initial Jobless Claims:  Beat

Upcoming Economic Data:

Wednesday:  Core Retail Sales, PPI, Retail Sales 

Thursday:  Building Permits, Philadelphia Fed Manufacturing Index, Initial Jobless Claims

Friday:  Existing Home Sales 

Historically, the peak of the Fed funds rate in a hiking cycle coincides with the beginning of an exceptionally powerful rally in gold.  While the rally may have begun earlier during this hiking cycle, we do not see appropriate risk/reward for any positions other than buy-and-hold’s for the long term.  Those positions accumulated beneath our ‘buy zones’ of $1700 and $1650 have now done well and we believe $1900 is a great place to take profit.

Oil beneath $74 will likely outperform most equities over the coming year.  From now through the first half of 2024 appears bullish for crude oil as it benefits from each of its catalysts in inflation, geopolitical uncertainty, and a global short supply of energy.

In addition to the stock market, Bitcoin and cryptocurrencies are also now testing major resistance levels in a substantial short-covering rally as cryptocurrencies have re-correlated.  While more strength can be seen into the start of this week, upside is likely limited from current prices.  Notably, last week former Speaker of the House Nancy Pelosi, a consistent out-performer of the S&P, sold large quantities of tech shares – perhaps preceding another sell-off in equities and cryptocurrencies.