Weekly Wisdom: Big Retail Sales Miss; Resistance Trendline Holds Strong

Greetings fellow traders and welcome to your January 19th edition of Weekly Wisdom: Levels to Know and Moves to Look For!

Let's get to what we're currently seeing in these crazy markets and what we have our focus on going forward.

Taking a look back on this week, January 17 - 20:

• The week started with weak manufacturing data on Tuesday, January 17. The Empire State Manufacturing Index came in with a big miss at -32.9 vs -8.7 expected.
• Markets were then hit hard on Wednesday, January 18 as more weak economic data came in premarket.
• It was encouraging for the inflation narrative for the December PPI to come in lighter than expected, at -0.5% vs -0.1% estimates.
• But retail sales dropped 1.1% in December, more than the 1% drop expected. It was the second monthly contraction in a row.
• The bigger focus has shifted away from inflation (consensus across the board is that inflation has peaked) and has moved toward the economy’s health as a whole. How much damage are the Fed’s interest rate hikes going to inflict on the economy?
• According to CNBC, “Sales during November and December grew 5.3% year over year to $936.3 billion, below the major trade group’s prediction for growth of between 6% and 8% over the year prior. In early November, NRF had projected spending of between $942.6 billion and $960.4 billion.”
• $SPX futures made a high of 4033 on Wednesday morning before rolling all the way over to close Wednesday’s session at a low of 3945. That was below the key 3950 level we noted bulls needed to hold to keep their momentum going. This high also matched up with the downward resistance trendline we’ve been sharing $SPX has struggled with all of 2022 and now into the new year. Bears remain in control in the big picture.
• $NFLX is due to report earnings tonight, January 19. Next week on Tuesday, January 24 $MSFT will report earnings followed by $TSLA on Wednesday, January 25.

And here's what we are eyeing next week, January 23 - 27:

• Bears are back in control with $SPX?below 3950, as our daily charts are now damaged with a week’s worth of gains wiped out in 2 days.??
• $VVIX has been positively diverging (negative for $SPX) for about a week now, closing green last Friday even as the $VIX closed at near year lows down at 18. Now that this positive divergence has played out and $VVIX is up 6 days in a row, bulls should be looking for a retracement or a negative divergence signal from $VVIX to look for a higher low in $SPX from 3800 support. An example of this signal could be $VVIX closing red on a day even with a green $VIX close and a red $SPX close.
• Bears now have momentum on their side as long as $SPX stays below 3950.
• As mentioned above, major earnings coming up include $NFLX tonight, $MSFT next Tuesday, and $TSLA next Wednesday.
• Friday, January 20 the National Association of Realtors releases December existing home sales data at 10:00 a.m. EST.
• Tuesday, January 24 we’ll get PMI data for France, Germany, and the UK overnight. We’ll also get US PMI data at 9:45 a.m. EST.
• Wednesday, January 25 at 10:00 a.m. EST, Canada will give their overnight rate decision and monetary policy report. Their Central Bank will hold a follow up press conference at 11:00 a.m. EST.
• Thursday, January 26 the Commerce Department releases its advanced estimate of Q4 GDP at 8:30 a.m. EST, plus weekly unemployment claims, and data for m/m durable goods orders. At 10:00 a.m. EST, we’ll get December new home sales data.?
• Friday, January 27 brings us the December core PCE price index, as well as personal spending m/m, and personal income m/m at 8:30 a.m. EST. At 10:00 a.m. EST, the University of Michigan releases its final January consumer sentiment index and Inflation expectations and the National Association of Realtors reports pending home sales for December.?

Here's Your Chart of the Week:

“We just saw one of the worst 2-month declines in retail sales since the Global Financial Crisis and the covid lockdowns. The squeeze on consumers is real and markets are starting to treat bad news as bad news.”

Source: https://twitter.com/TaviCosta/status/1615788806938198017

SPY Daily / Weekly Update:

$SPY had a hard reject off the resistance trendline / 400 resistance level with the deteriorating economic data that was released this week. Bulls must hold $SPY 386, the prior breakout level. Bears are fully in control with $SPY below 395.

$SPY continues to be faded off the 2022 resistance trendline. Bears will gain momentum if we lose last week’s low below 386.

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-Patrick Hawe

Disclosures

Patrick Hawe's current positions:

*As of 2:30pm ET January 19, 2023

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