Week review · w/c 3 October 2022 · Post-EOQ: a hot PCE print and a jobs week ahead
Equities closed out the week, the month and the quarter lower after a hot PCE print, and the weekly profile is neutral extreme, closing at the edge after a late spike below the 3613 singles. Here is the week day by day from my charts, the weekly and monthly structure, and a jobs week ahead with oil balancing into OPEC.
WK HIGH 3751.25 | WK LOW 3595.25 | CLOSE 3601.5 · 24-hour session
The week in brief
U.S. equity markets tumbled on the last trading day of September in a broad-based decline, after the Commerce Department's latest PCE Price Index report showed the Federal Reserve's preferred inflation gauge accelerated more than expected in August. The S&P 500, Nasdaq and Dow all dropped over 1.5%.
In a statement on Friday, Fed Vice Chair Lael Brainard said the central bank remains committed to tightening monetary policy to curb inflation, and warned against 'pulling back prematurely'.
The three major averages closed out the week, month and quarter lower. For the month, the Dow fell 8.8%, the S&P lost 9.3% and the Nasdaq was 10.5% lower.
My readA very balanced week into the EOQ and EOM OPEX Friday. The sell-off continues, with all time frames, daily, weekly and monthly, OTFD (one-time framing down). The auction lower is potentially a maturing move: the auction is finding a degree of balance as older shorts cover into important lows.
We are seeing a potential accumulation of inventory, as the auction failed to find strong HTF initiative sellers. The late spike lower on Friday is important, and we will need to monitor for continuation and acceptance at lower prices, or a look below and failure, to then trade back into balance.
Day by day
- The prior Friday: open out of range (OR), open drive (OD), the day's high at 3735. Friday's low 3660.
- Monday: the auction sees a reversal continuation away from Friday's lows, but the short-covering rally is weak and fails to take out Friday's high: 3730, Monday's high. 3657 LL, Monday's low: a lower low, but its unconvincing nature results in another reversal as short positioning covers.
- Tuesday: an early attempt to break out of the 2-day balance high is defended by sellers, who take control of the auction to test the other side of balance. The auction reverts to the lows of balance and trades lower. Any sellers did not want to see the auction recover above the prior 2 days' lows, 3657. Another short reversal above 3657. Tuesday's low 3634 LL.
- Wednesday: a look above, but the auction fails to find acceptance above the 3-day balance. Friday's gap remains unclosed.
- Thursday: the auction opens at the 4-day balance mid-point, 3693. Early initiative from sellers sets a new weekly low, but the auction then finds buyers to retest the ON lows, 3674, to close the week setting a new weekly low. PB to the ON low; 3630 LL. Thursday is an island day (no overlapping value with the prior auction): late Thursday lower lows attract some late-afternoon short covering into the close. 3621 LL.
- Friday: a late spike below the prior day's lows. This is an important spike reference, at 3613: the 3613 singles. Will we find acceptance? Shorts will want to see the weekly POC rejected quickly: 3650, the weekly and Friday's POC.
The weekly structure
Weekly profileThe weekly profile is neutral extreme: both buyers and sellers are active at these levels, and the auction closes at the extreme edge.
Balance, neutral extreme. The focus will be on whether shorts can maintain the auction imbalance below the late singles break, 3613, into Friday's close.
Can longs close the gap? Or trade last week's high to end and reverse OTFD?
Shorts will want to see an early test into last week's VAL, and the singles marker fail. If the auction can maintain above the singles marker, another temporary short-covering move to test the upper bounds of balance is to be expected.
Why look at the weekly and monthly?Using the composite profiles gives me a lot of clarity in understanding the market. Understanding the story and the basic mechanics of what is going on simplifies almost every other aspect of my trading, especially timing.
By identifying areas of balance and acceptance in the auction, I have a natural edge. I can identify value and the pivots of change. In balance, I look to fade the extremes. When activity leaves an area of acceptance, I monitor the strength and conviction of the move, using volume and value as my guide. As a general rule, if a move is genuine, volume and value will move away from prior acceptance to a new area.
Monthly profiles: OTFDThe auction is currently at the upper edge of the Biden election imbalance that followed the Covid vaccine announcement of November 2020. Look at the difference between the pre-ATH auction and the start of the selling imbalance in early 2022.
Levels for next week
Levels marked on the weekly review, above and below. Shorts want the weekly POC at 3650 rejected quickly, and the auction kept below the late singles break at 3613.
Data ahead
Key takeawaysFrom the IHS Markit week-ahead report:
- Reports on the U.S. jobs market could show how well the labour market has held up against the Fed's rate hikes to curb inflation.
- The US week kicks off with PMI and ISM surveys and ends with the employment report, giving plenty of fresh insight into the economic growth path and inflation trends.
- On Tuesday, the Labor Department releases its JOLTS report for August.
- ADP's National Employment Report for September follows on Wednesday.
- On Friday, the Labor Department releases its nonfarm payrolls report for September.
Events calendarMonday, October 3
- S&P Global Manufacturing PMI, final reading (Sep)
- ISM Manufacturing PMI (Sep)
- ISM Manufacturing Employment Change (Sep)
- Construction Spending (Aug)
Tuesday, October 4
- Acuity Brands (AYI) and Novagold Resources (NG) report earnings
- JOLTS Labor Market Survey Report (Aug)
- Factory Orders (Aug)
Wednesday, October 5
- Lamb Weston Holdings (LW) and RPM International (RPM) report earnings
- ADP Private Sector Payrolls (Sep)
- U.S. Balance of Trade (Aug)
- S&P Global Services PMI, final reading (Sep)
- ISM Non-Manufacturing PMI (Sep)
Thursday, October 6
- Constellation Brands (STZ), McCormick & Company (MKC) and Levi Strauss (LEVI) report earnings
Friday, October 7
- Nonfarm Payrolls (Sep)
- Wholesale Inventories (Aug)
Weekend readingRate expectations. A piece looking at rate expectations going forward, given the new median Fed dot plots. The predictions focus on the incoming recession and its impact, and on the surprising resilience in wage and core inflation growth.
OPEC to decide production runs. There is some talk of cuts as they look to defend falling prices on fears of a deep recession.
Oil is balancing into a crucial week for the commodity, with recession fears brought on by Fed tightening and an OPEC meeting seeking to cut by up to 1mbpd to support prices. Next week will be important.
On the crude chart: 82.97 non-XS; the NX XS lows at 76.49; 82.30, 81.22 and 80.60 marked; and the 78.90 NVPOC and CHVN. An HVN composite: I'm waiting to see PA into this area, 78.80-78.40.
Notable tweetFrom Twitter, 21 September 2022: what has been happening to yields this year, and to inflation expectations going forward?
Key tweets
What has been happening to yields this year and inflation expectations going forward?
View on X →Key lessons
Trade well and prosper.
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