The major US indexes started the new year with a sharp contraction. US stocks posted the worst two-day performance since October. American stock exchanges started the year on the wrong foot as investors reassessed the likelihood of aggressive rate cuts from the Fed this year.
The latest Fed minutes provided no clues on rate cut timings. Policymakers believe that peak rates have been already reached but are still determining the timing of the first rate cut for this year.
The economic calendar will deliver crucial macro data and the kickoff of the earning season
On Thursday, 11 January, data on US inflation will be released. The data comes after CPI for November eased to 3.1%, in line with forecasts, while core inflation remained at 4%. The data comes as the market is trying to evaluate how aggressively the Fed will be cutting interest rates in 2024. Cooler-than-expected inflation could fuel expectations that the Fed will cut rates more aggressively this year. Meanwhile, hotter-than-expected inflation could see the market rein in Fed rate cut expectations.
On Friday, 12 January, China inflation data is due to be released and investors will be looking to see whether deflation in the country has worsened. CPI fell -0.5% annually in November, as pressures mounted in the world’s second-largest economy. Deflationary worries have risen in line with other economic pressures in the country, including a liquidity crunch in the building sector, weak trade data, and a slowing recovery from three years of zero Covid lockdowns.
Switching continents and moving to the Eurozone, retail data sales will be released on Monday, the 8th of January. Retail sales ticked up slightly in October after three months of decline but missed expectations as households remain under pressure amid record interest rates. The market expects the ECB to be one of the first major central banks to start cutting rates as the economy struggles. Weak retail sales data could fuel these bets, further pulling the EUR level.
U.S. banks kicked off the Q4 earning season with JP Morgan, Bank of America, Wells Fargo, Citigroup, and BlackRock, which are all to report earnings on the 12th of January. In Q3, large US banks reported better-than-expected earnings but warned of a rocky road ahead as consumer resilience could be wearing down as more customers struggle to make payments. While high interest rates have boosted net interest income, investors will be watching the impact of higher costs and the potential for higher deteriorated loan charges.
Finally, we should mention Bitcoin performances. The cryptocurrency had a volatile start to 2024, rising above 45K, a 20-month high, before plunging to 41k on the 3rd of January. This week, according to Bloomberg intelligence analyst James Seyffart, Bitcoin will remain in focus on expectations that the SEC approval window for the spot Bitcoin ETF is between the 8th and the 10th of January. While a spot BTC ETF is considered to be bullish for cryptocurrencies over the longer term, the recent rally in Bitcoin suggests that the move may have been priced in, so watch out for a buy the rumor, sell the fact.
Market trading volumes will return to normal pace after the Christmas break.
2024 will be very important for the markets. There are several political elections in different regions of the world, starting from the United States of America to Iran, Mexico, Portugal, the United Kingdom, and about 50 other countries. Furthermore, attention will be focused on the war in Ukraine and Israel as well as the various issues in the Middle Eastern region. The year is expected to be positive for the stock markets with 4-5 months of sideways and bearish movement. Most likely the lows for the year will be posted at the end of the first semester. After that, markets should rise until the end of the year, reaching annual highs in December.
What will happen from now on? We are approaching a crucial period of the year for the stock market. Furthermore, since reaching the lows on 30 October, prices have not yet experienced a retracement of more than 3%. We believe that this event could be imminent and that January could close below its opening levels or even below the lows recorded in December.
From the lows of the week of March 13, the rise of the international stock exchanges has been incredible. The thesis that supported a lead to a very strong climb until August 4th, the annual setup, was confirmed with almost millimeter precision. Everything occurred as we predicted, and between September 2022 and March 2023, all international markets posted their temporary lows (which could also be the ten-year lows).
Beyond the rhetoric of the debt ceiling, the recession, and the banking crisis, only a decisive flip in sentiment could lead to a trend reversal. Earnings of US mega caps have shown off and many other companies are also ramping up the increase in revenue.
The average annual returns on international equities (World Stock Exchanges based on GDP) are around 11%. Current rates in America are more than 5%. With a projection for 10, 15, and 20 years, equity markets always beat bond markets. Therefore, we should be at the starting point of a 10-year bull market.
Rising interest rates won’t directly and inevitably lead to a recession. As long as these hikes are balanced with economic growth, there should be no danger. On the other hand, an exaggerated rate cut could drag down the markets for a long time.
The likely lows that were supposed to be posted in October 2022 will have a high probability of remaining so for many years. They could represent the lows of the entire decade. Despite a certain short-term overbought situation, the markets are unstoppable and will be like this for a long time. Here is why.
We have highlighted several times that stock prices tend to move at least 6/9 months before the economic cycle. For this reason, during the final part of 2022, the markets would have posted a significant bottom between June and October and then taken off again for the long term. The prices marked during the year had discounted the most unfavourable, geopolitical and geo-economic conditions.
During 2024, we expect an annual return of around 10 percent with lows likely to be reached between May and June, while peaks should be reached in December.
As always, we will confirm the annual forecast from time to time.
The S&P500 came within a few points of new historical highs at the end of December, reaching the 4841 area. Last week, we witnessed a healthy correction that pushed prices to the 4735 area, after having come close to the 4700-4707 support.
Control area is located at 4759-4725; closing above or below this level could determine a new bullish lunge or a weekly corrective phase.
4707-4700 support area is confirmed. Key supports in the 4680 and 4660 areas. The latter level remains weekly.
The 4595-4607 area became the monthly control area, closing below it could lead to a significant corrective movement.
The supports in the 4592-4582 area are confirmed, the loss of this latter zone could lead to swift corrections up to the 4562-4552 support, crucial for the ongoing upward movement.
Additional supports in area 4542-4538 and 4528-4523.
4517-4510 and 4503-4494 confirmed. The support in the 4491-4474 area is critical, and the loss of this latter area could bring steep corrections. The target is the support in the 4428 area, which is confirmed as a monthly level.
Confirmed 4411-4409, 4397, 4390-388 and 4371-4384.
The 4363 level is again confirmed, the breaking of this important level could lead to swift corrections towards 4334-4327, 4320-4315, 4303-4292 up to 4256, which remains a key support for the ongoing rally. Additional supports in areas 4244-4223, an overbought area, 4190-4185, and 4164-4158.
Late November support at 4138-4124 became the new monthly support. 4117 and 4100 are confirmed. Losing the latter support could lead to heavy drawdowns in the medium term.
Confirmed the supports in 3930-3905-3899, 3945-3957-3961, 3979, 3993-4000, and 4032-4043 areas. The 4064-4075 areas remain a crucial support for this year too.
3890-3879 is still a critical area because, in this specific area, buyers managed to concentrate. Additional support in 3864-3857 areas. Another intermediate zone is located in the 3822-3814 area.
Support in the 3808-3798 zone was confirmed, below which prices could start a new downward spiral.
Confirmed supports in 3669, 3680-3689-3701, 3711-3726-3733 areas.
3762 and 3711 are the monthly levels that support the current uptrend, so beware of any breakout of these levels: We could witness a new trend reversal.
The psychological support of 3600 remains crucial. The support at 3644-3651 has halted the fall and is now the monthly support after this solid uptrend. It shouldn’t be reached again, to avoid new and heavy downward movements. Below is the 3607 level. Then again, the 3557-3547, 3538-3524, and 3514-3507 are support levels. The 3485 support is now the annual, critical, and historical level for the S&P500 index. We will monitor whether this last level could stop, at least in the medium term, the bearish direction of the markets. Should we go beyond it, 3200-3300 will be the target, sought after by funds, investors, and traders halfway around the world.
Protecting 4770 will push prices towards new historical highs, the first target is 5000-5100 and then 5300-5500. New resistance in the 4784-4793 and 4830-4837 area, which becomes weekly.
How to move? In recent days, a corrective phase has unfolded, and it might extend further. As we mentioned, until 6 January, there were no dangers ahead, but from this date onwards a decline of even one or even two months could take place. The closing bell on Friday will provide us with the answers. The impact of this week could influence prices throughout the whole quarter.
DE40 – Last December, the German index reached our first annual target in the 16800-17000 area, and then retraced until last week, opening up to a likelihood of a significant corrective phase. Prices have initiated a first attempt to attack the weekly support at 16416-306.
Support at 16416-306 confirmed which remains weekly. Only below this latter area, the Dax could begin a serious retracement.
Additional supports in the 16263-223, 16198-163 and 16132 area. These levels are great areas to look for long entries. Below 16132 prices can accelerate strongly downwards, towards the new critical support at 16025-15958.
15918-872 is confirmed, below this level, we could observe swift downward corrections with targets at the key volumetric supports of 15679-620 and 15589-533. Additional support in areas 15422-384 and 15315-252.
15130-097-070 and 15036-15000 confirmed. Monthly support in the 14935-895 area. Other supports in the 14874-801 and 14775-730 area. 14662 and 14625-590 confirmed.
Confirmed intermediate supports 14138-184, 14342, 14414-545.
Critical area in the 13814-781 zone. The loss of the volumetric zone 14069-13974 opens the gateway to the monthly support in the 13621 area.
Solid supports in areas 13692-608, 13550-516, and 13457-410. Supports 13314-333, 13331-410, 13438-467 are confirmed.
Confirmed volumetric supports in areas 12865, 12833-12909, 12978-13038, 13113-178, 13222-280, 13307-357.
Confirmed the supports in area 12808-766. From 12628 to 12766, there are a series of intermediate supports, helpful for long entry from pullbacks. 12566 becomes monthly support.
Additional critical supports are 12407-517 for the concentration of volumes. 12353-275 is the first bullish turning zone. Confirmed support in areas 12223 and 12136.
It was also confirmed support in the 19920-15006 area. This is 11875-11950-12024, which halted the price fall after the US CPI data on the 13 October 2022. Losing it would mean new bearish pressures and a touch of the weekly support in the 11766 area; with extensions to 11650 and 11542 below it. The 11095 mark could be a target in case of a massive sell-off. These levels can be considered annual reversal points.
The Dax has reached our annual target in the 16800-17000 area. New resistances in the 16460-550, 16567-533, and 16653-695 areas. This initial block of levels must be overcome to provide a new reliable bullish signal on a weekly basis. Additional resistance in the 16719-790 and 16819-898 areas. 16927-972 is the new weekly resistance.
If prices stabilize above 16827-972, we will aim for 17100 and then we will target the final extension of 2023 in the 17500 area. There is also the potential for new annual targets in the 18000-18500 area.
If by the following Friday, prices remain above 16590, we could witness a chance for a continuation of a bullish movement on a monthly basis; below 16430, the trend could move firmly downwards again.
US30 – In December, the American index, reached new historical highs in the 37884 area but reversed slightly last week towards the 37236 support area, which corresponds to the pre-Christmas level.
37378-253, and 37236 areas are the first to be monitored. Intermediate areas: 37126-034, 36927-850, 36762-657, 36617-494, 36403-342. The latter becomes a weekly level. All of these areas are excellent buying opportunities. Only the loss of the weekly support could open up for major corrections.
Confirmed 36094-36300, 36013-35872, 35813, 35717-570, 35459-370 and 35337-237. These are optimal levels to take into consideration for possible long re-entries in the event of a price correction.
Supports in the 35206, 35140, and 35052-34946 areas confirmed.
34880, 34833-796, and 34717-630 confirmed which is the critical volumetric support. The loss of these supports will be due to swift corrections at target 34383-210 and 34082-33929, which becomes the new monthly support.
Confirmed 33868-811, 33767-598, 33557-457 and 33384-192. Monthly support in area 33133-057. Additional supports in area 32896-792.
New monthly support in the 32771-650 area. Critical supports was confirmed in areas 32600-524 and 32393-331.
Confirmed supports are located in two overbought areas: 31197-497 and 31536-764. Additional support areas are placed at 31753-920, 32111, and 32276. The 31861 level still remains a key one.
31036-31125 is still to be considered critical support for the monthly level. It was confirmed 30953-815, 30715-614, 30559-381, 30253-136, and 29696-29906.
The 29485 mark remains a critical one. In addition to the 29619-529 and 29338-29264, the support zones 29159-28876 and 28800-28685 are again kept. These are all excellent supports to look for long entry opportunities from pullbacks. Should they all be pierced to the downside, prices could move toward 28319, 28051, 27765, and 27019 in extension.
At 35620, the gap of Tuesday 2 August will be filled. Final resistance in the 35673-715 area.
Prices reached and broke 37.000 points, posting new historical highs. New annual targets at 40000-42000.
New resistances in the 37394-571 area. The break of the latter level could lead towards 37600-699, 37742-785, and 37824-872, which becomes the new weekly resistance.
IMPORTANT NOTE: The market should post new peaks in volatility, initiating an important corrective phase starting from the week’s closure. It will be crucial to monitor the status of the weekly supports to determine the possibility of a bullish continuation throughout the current month.
Also, this week, it is wise to note Monday’s openings and Friday’s closings for confirmation or denial of the current trend. Avoid overtrading and watch for volatility imparted by HFTs. Mark any gaps that may also appear during the week, with particular attention to those on Monday.
Happy trading and happy new year 2024!