Market Analytics and Considerations
Key Notes
This previous week saw a return of market volatility as the VIX “horror indicator” rose by about 20%, the highest level since August. The Dow Jones, S&P 500, and Nasdaq 100 all declined on Wall Street by 2.08%, 2.71%, and 2.72%, accordingly. Europe wasn’t looking great either, with the DAX 40 falling 1.5%. ASX 200 in Australia dropped 2.14%.
When US wholesale inflation statistics for November came across the wires earlier than expected last week, there was a significant increase in volatility. It also didn’t hurt that consumer sentiment at the University of Michigan shocked higher. All Treasury yields increased as forecasts for the Federal Reserve’s monetary and fiscal policy became more aggressive.
The US Dollar performed better than the majority of its significant rivals, particularly the Japanese Yen. Prices for gold barely moved. In response to growing recessionary fears, crude oil fell by nearly 10.9%, the largest since March. Taking into account price movement since 2020, statistical analysis reveals that there is an 8% chance that oil will decline by at least 10.9% in a given week.
All eyes are on the Federal Reserve as we approach the coming week. The likelihood of a moderate speed of tightness has been highlighted by policymakers. Markets are factoring in a rate increase of 50 basis points to 4.5%. Officials have, however, also been gradually widening the window for tightening for longer. Market expectations for a shift are still high, which could lead to letdown.
The day before the Fed, we will also receive the most recent CPI data. US headline inflation is expected to fall to 7.3% y/y in November from 7.7% in October. A surprising positive result could simply send the market tumbling, strengthening the US Dollar and harming gold. The ECB and BoE rate determinations for the Euro and British Pound, accordingly, are two more noteworthy occasions.
Key Critical Events Shaping the Big Picture
S&P500
According to data from market participants, 51.84 percent of traders are net long, as well as the long-to-short proportion is 1.08 to 1. The number of investors who are net-long is off 4.34% from Monday (today) and up 30.96% from the previous week, whereas the number of traders who are net-short is up 2.54% from last Friday and down 11.70% from the previous week.
Because we frequently disagree with popular opinion, the fact that investors are net-long signals that US 500 pricing may remain in decline. Less net-long than Friday last, but more net-long than last week, is the positioning. We have a further mixed US 500 trade bias based on the current mood and previous adjustments.
Nasdaq
Unless next week’s CPI and/or FOMC decision provide the tech index a reprieve, the Nasdaq 100 will likely be stuck in a box pattern for the foreseeable future. The Nasdaq is still being affected by the persistent downturn even though recent price action implies a bullish flag setup.
GBP/USD
The rising wedge pattern is still being followed by the daily GBP/USD price action in the aftermath of the recent push over the 200-day SMA Despite this, bulls have not been particularly motivated to take advantage of this development, which may indicate that the bullish impetus is weakening.
Currently, retail traders are SHORT on GBP/USD, with 61% of traders carrying short holdings. When it comes to the general mood, we like to takes the opposite perspective, but recent changes in long and short holdings have led us to adopt a short-term skeptical inclination
Critical Economic Events to Watch
There is still some possibility for more pound gains since the Relative Strength Index (RSI) is approaching overbought territory, but given the underlying challenges facing the UK, there may be room for a leg lower on the cable pair. The 1.2000 and 1.1900 support levers, correspondingly, might be made visible by a confirmation near to the 200-day SMA, which ought to provide wedge support.
