Week review · w/c 30 January 2023 · Still inside monthly balance, into a big central bank week
The weekly is one-time framing higher: buyers held the prior week's mid and squeezed shorts into earnings, and Friday's strength ran to the 4110 spike highs. The monthly profiles are still inside balance, with the Fed, the BoE and the ECB all meeting this week: watch the extremes for strength, or a quick return to the mid.
WK HIGH 4109.25 | WK LOW 3963.25 | CLOSE 4084.25 · 24-hour session
The week in brief
Despite lukewarm earnings, the start to 2023 has been positive for US equity investors. There wasn't much else to report back, with the Fed in lockdown.
Hopes for a more dovish Fed, on the back of the recent softening in inflation pressures and weak business survey data, have fuelled positive risk sentiment to a large extent.
Weekly OTFU: can this continue for a 5th week?
Day by day
Into the weekConsolidation phase: sellers unable to force sellers to concede ground. PA is very obviously holding above Friday's settle/highs, 3987. 2-way.
MondayThe EU session failed to find any challengers, and buyers gained confidence for a continuation move higher on the US open. Late Monday high, 4056: aggressive profit-taking into the close, having seen ES rally up from 3901 on Thursday without reply from sellers.
TuesdayProfit-taking continues, but buyers step in above 4000 in the RTH session.
WednesdayThe ETH session saw buyers lose ground, trading well inside the prior week's range. Buyers need to hold the prior week's mid to maintain confidence, and buyers are indeed found at the prior week's mid: non-excess absorption lows, the week's low at 3963. You will often see me mention the importance of the mid for continuation! RTH buyers step in to squeeze shorts into earnings.
ThursdayStops above Monday's highs as shorts are pushed over the edge and finally jump! Then a consolidation phase: sellers unable to force sellers to concede ground. PA is very obviously holding above Monday's highs, 4057. 2-way.
FridayRTH open: buyers aggressive in the ETH zipper, the 4057-4070 area, up to the spike highs at 4110. Don't fade Friday strength: as a rule, it keeps you out of trouble. 4084 POC and settle.
The weekly structure
How I review the weekReview the week's RTH before you look at the profiles. Can you see where the price action reverses? Can you identify where price becomes stuck? Look at the overlapping profiles. Does this help? Look at last week's references, and look at the shape of the daily profiles.
Why 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's going on simplifies almost every other aspect of my trading, especially timing.
I have a natural edge in identifying areas of balance and acceptance in the auction: 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 move for strength and conviction, 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.
MonthlyThe monthly profiles are still inside balance. Big week this week, with multiple CB meetings. Observe the extremes for strength and breakout continuation. Otherwise this could be a quick return to the mid, if not a test of the 2023 lows. The Fed reaction will be important.
WeeklyThe weekly OTF is higher. Can this continue for another week? Friday saw some aggressive buying, only to pull back aggressively into the close. I'll want to make sure buyers are still lurking around, given the recent strength and with all the CB meetings ahead.
On the chartsOn the daily: the 4182 Dec CPI high and the Oct low. Are we in a new bull trend?
On the monthly profiles: the MLVN at 4226, the 4190 Aug POC, the 4170 Sep high and the 4142 Dec high (both non-excess), the 3862 Dec POC, the 3789 Dec low with a tail low, and the 20,100 DMA + DVWAP zone.
On the weekly profiles: a tail high double top, the 4141 Dec high, the 3999 CPI week mid and the 3963 week low.
Levels for next week
The areas I'll pay the most attention to are Friday's settle and lows, where we saw some strong absorption on the open. Failing that, the weekly VPOC at 4032. I suspect there are a few stops below 4027 (Thursday's poor lows).
My LIS is the 4013 mVPOC, then 4006 and the singles left over from last Wednesday's rally. A hold below the monthly VPOC area would see us retest the monthly balance VA lows, the 3900 area, where we have the 100dma.
If buyers can regain last week's settlement, that sets us up for a test of the NVPOC at 4190.
This will probably rest on the outcome of the CB meetings, and some adjustments may be necessary before then. The rest of my levels are marked on the weekly profiles, above and below.
Data ahead
The tone of the FOMC meeting and the press conference afterwards will go a long way to deciding whether this optimism can last. Markets have fully priced in a 25-basis-point hike, but what happens next matters more. Markets are pricing in rate cuts in late 2023, and the Fed has sought to dismiss those hopes.
We also have central bank meetings in the UK and the eurozone, and some of the most important monthly data: US labour market and eurozone inflation data, and the global manufacturing and services PMIs. All of it will help in assessing global growth and inflation at the start of 2023. Germany's Q4 GDP and inflation figures are out this week too.
Key takeaways
- Earnings season continues with big tech: Apple, Amazon, Google parent Alphabet and Meta Platforms.
- Also reporting: ExxonMobil, Pfizer, UPS, McDonald's, Caterpillar, Starbucks, and automakers Ford and General Motors, among many others.
- US labour market updates: the JOLTS report for December, ADP's National Employment Report tracking private payrolls, and the nonfarm payrolls report for January.
- The first FOMC meeting of 2023, with the Fed widely expected to raise rates by 25 basis points.
- Overseas, the ECB and the BoE also meet on monetary policy, and to raise rates.
- Home prices, with the Case-Shiller National Home Price Index for November, plus the latest PMIs tracking US manufacturing and services activity.
Key lessons
Trade well and prosper.
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