Week of 1/21 Markets Overview

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ES/SPX/SPY

ES spent 5 weeks effectively consolidating between 4745 and 4835 with a quick trap lower to retest the massive FOMC move. Today that balance was decisively broken to the upside.

NQ QQQ had a similar but less clean balance and a deeper test back to the 12/11 trend day.

RTY IWM

Perhaps because it had such an enormous move off the 12/13 FOMC decision it spent time relatively weak compared to the ES and NQ in that it was clearly in a short timeframe downtrend. However, it didn’t make it to the back test until almost 2 weeks later (Wednesday this week). It is currently coming into both trend and horizontal resistance but could see a nice continuation move higher if risk appetite picks up. Zoomed out and zoomed in:

YM

YM is interesting here. It’s balance was most similar to ES with its look below and fail much later. It also has not back tested the 12/13 move but being less rate sensitive this may be reasonable. On Friday it trade up through the early January highs but did not close above, arguably pulling back into the primary balance range. We will have to be mindful that this could be a look above and fail that falls back in range early next week.

ZN

ZN today back tested this weekly 3-bar up and it’s 12/13 move. SO far the reaction is muted and there is certainly some overhead here. However, a constructive move higher could be just what the indices (RTY specifically) need to take on some additional risk appetite.

CL

Crude is currently chewing through supply from this most recent balance range and doing so with higher lows in a consolidation pattern. Structure is still pretty bearish but with much of that supply already cleared and small catalyst coudl see it have a significant move higher, likely into the 79-80 range. It frankly makes very little sense that the market consensus is for a soft landing yet crude is being sold as if a recession is imminent. It seems possible to me that it is almost being used as a hedge against broad soft landing position in case there is not a soft landing.

DX/DXY/USD

The dollar broke out from a multi-year balance and made an explosive move in 2022 but has since consolidated to the downside and is back testing the prior range. It would seem unlikely that the dollar would consolidate for years, break out, and then fail back into range but anything is possible. It also seems unlikely that ex-US economies will hold up as well as the US and thus reasonable to expect US policy to remain more firm relative to ex-US. In this case it is reasonable to expect the dollar to do the same.

GC

Gold is yet another example of the backtest of the 12/13 FOMC move and has been making higher lows and higher highs. Weakness in the dollar and relief in long end yields can have a supportive effect for gold. If bonds (as in ZN) do catch a bid here then there could be some additional upside in the immediate term for gold.

As always, both a detailed weekly plan for ES/SPX/SPY and a daily plan for Monday will be posted this weekend.