Futures are moderately lower, testing the 50-day moving average as ripples from the longest ever government shutdown reach more critical areas of the economy.
Note that ES has now completed a small H&S Pattern that targets 6535.
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Futures are up modestly as traders look ahead to this week’s important data dumps: FOMC minutes and CPI on Wednesday, initial claims and PPI on Thursday, and Friday’s U of Michigan consumer sentiment.
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January headline PCE registered a 0.3% increase MoM (0.4% Core) which was in line with most estimates. YoY, headline PCE rose 2.4% versus 2.6% in December, while core PCE rose 2.8%, down from 2.9% in December.
In other economic data, personal income rose to 1.0% MoM from 0.3% in December and personal spending rose at a 0.2% rate versus 0.7% in December.
Algos cheered the data, with futures swinging from a moderate loss to a moderate gain in seconds.
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Futures are off moderately in the lead up to tomorrow’s important PCE print.
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To quote the great Yogi Berra, “it’s tough to make predictions, especially about the future.”
But, there are a number of important themes that should drive markets in 2024. The elephants in the forecasting room are the so-called Magnificent Seven (AAPL, GOOGL, MSFT, AMZN, META, TSLA and NVDA) which soared 105% in 2023 versus the S&P 500’s 24%.
These seven stocks make up roughly 30% of the S&P 500, so even that index’s returns are suspect. Without the Mag 7, SPX gained only 9.94%. So, don’t chastise your investment manager if they returned only 10% last year by exercising prudent diversification.
Will the rest of the market catch up to the Mag 7 or will the Mag 7 “catch down” to the rest of the market? Investors tempted to join the party and pile into the Mag 7 should remember that, in 2022, these same stocks plunged 40% compared to the rest of the market’s 12% losses.
From a fundamental standpoint, their price to earnings multiples are historically quite high, meaning that any disappointments will be dealt with harshly. We saw this last week with AAPL. While SPX fell as much as 2.2% from its highs, AAPL was off a whopping 9.7%.
We’ll spend the next several days examining the equity charts for clues as to what to expect in the year ahead. We’ll also zero in on the currencies, commodities and interest rates which greatly influence equity values.
As always, our goal is to get most them right most of the time, as we did in 2023 [see: The Year in Review – 2023.] Chart patterns and technical analysis are great tools for doing so. We’ll start with a very obvious chart pattern for SPX which should make all the difference between a stellar year or a slump. It ties in with another chart pattern dating back to the Great Depression.
The most important chart pattern for SPX is the large Inverted H&S Pattern which completed on Dec 11.
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Futures are off moderately on the first trading day after what was a torrid November. Bears might take some comfort from the overbought Dow, which has reached Fibonacci and channel resistance.
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Official core PCE came in at 3.5% YoY (0.2% MoM) which was high enough to knock fuutres off their overnight highs but not enough to drive VIX above its 10-day moving average.
We pay a lot of attention to VIX as it’s perhaps the most important daily driver of algo behaviour. After poking up above its SMA10 in October for all of nine sessions, it has now spent an entire month ducking below it – stymieing any equity pullbacks…until now.
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Futures are off moderately following a big slide in GOOGL shares. 
AAPL and AMZN are also off.
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Futures are sagging once again as they test our latest downside target to be tagged.
One has to wonder how much ground will need to be given up in order for consumer confidence to drop back below 100.
Note that the Dow is testing its 200-day moving average – always an important threshold when it comes to investor confidence.
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Futures are up moderately in advance of this afternoon’s FOMC meeting.
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