What a week we had last week with the CPI and FOMC coming in. This week does not have anything major on the economic calendar until Friday's PCE data.
Let's recap the events of last week real fast, as that will help us make my case for the upcoming few weeks.
CPI and FOMC Recap -
CPI came in cooler than expected and the market rocketed up to over 410 in premarket. It could not hold the gains and plummeted and hung around 405 until FOMC. That was a critical data point to me that the cooler CPI no longer meant that the market was going to rocket up higher.
Right before FOMC, SPY was at 405. The Economic Projections came out with the Fed Funds Rate for 2023 set to come in at 5.1%. But the major things that stuck out to me in that report was the lower GDP expectations and the higher Core Inflation expectations. Basically, the Fed is expecting a recession with those projections.
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In the press conference, JPow came in very hawkish. He was extremely hesitant in his answers to not say anything bullish for the market to rally. He was very clear that he was not pausing, not cutting, keeping his inflation mandate at 2% and all the projections factored in the latest CPI report. It was a very bearish conference.
The market seemed to be dazed during the conference and closed near 399. But the selling intensified the next 2 days and SPY closed the week a little over 383. The weekly chart is pretty ugly for SPY.
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My Prediction -
We are shifting from the inflation trade to the recession trade. So what we have used as signals and macro indicators has now shifted. I find Fed Daly's comments on Friday very telling. She is one of the most dovish Fed members and came out with a hawkish statement. She stated that she is looking at holding the peak fed rate for 11 months (!) and that the peak fed rate could adjust meeting by meeting. JPow must have said we need to have a unified message to the FOMC members in the meeting last week.
Those comments to me signal the end of the Fed trade. So any upward movement we had from the June lows and the Fed pivot theory, should be lost. It won't go in a straight line, but I am fading every pop we get. We should start to see the TLT jump up as folks run to Bonds as a safehaven.
Current Positions and Plays -
I am holding core SPX puts for Jan 20. I will look to add to these at SPY key levels on a retests of major levels.
Friday - PCE inflation and consumer data in premarket
Friday - UoM inflation and Consumer Data at 10:00am. The sneaky big report that no one mentions.
THE PLAYS OF THE WEEK for SPY:
It is pretty simple for me moving forward. Grab puts at key levels of 386, 390, 393. If we never test them, look at grabbing some calls near 373 as a hedge.
SPY Technicals -
SPY Technicals - The 30 min, 1 hour, and 4 hour charts are all almost oversold. The Daily chart is neutral.
SPY is now under its 50, 100 and 200 MA averages on the Daily chart.
SPY Fibs for ATH to June 2022 low - 390 is the .236 line. There is a possibility for us to retest this line soon and most likely it turns into resistance.
SPY Fibs for COVID low to ATH - 380 is the .382. If this level falls, it could lead to a major push downward.
NOTE: I am turning into a swing trader for various reasons, so please keep that in mind moving forward. My options plays will be always a few weeks out because of this.
