A holiday-shortened week is looking like it will get off to a lower start, as China landed some weak growth numbers and more earnings roll out. That’s after two positive weeks to start 2023.
“The weight of the evidence strongly tipped in favor of the bulls last week after a number of high signal breadth thrusts triggered,” writes the Macro Ops team in a Monday blog post. They see that could drive some decent S&P 500 gains before “it rolls over again.”
Market breadth refers to how many stocks are participating in an up or down move. Breadth thrust indicators can determine where markets are going, and according to some, are often be found at the start of new bull markets.
“It’s our view we’re in a broader topping process at best as we expect a recession near the end of the year. But after last week we have to be open to the possibility of a run at the prior Jan highs, which would be 20% above current levels,” says the Macro Ops team.
They pointed to others who also noticed some breadth thrust indicators last week, including evidence of an “unprecedented breadth trifecta form Quantifiable Edges. The first part of that is longtime investor Walter Deemer’s Breakaway Momentum signal that indicates “really powerful upside momentum,” which he tweeted about recently:
As Quantifable Edges pointed out, Thursday was the first time all three landed on the same day. Two of three signals triggered the same day has happened only seven times, according to the chart below:
Apart from flagging a string of bullish indicators, the Macro Ops team offers some investing advice as well — they suggest exposure to home builders right now (a sector they flagged in November.)
“The market is waaaay overweight a recession in the 1st half of this year, when economic data and monetary lags behind suggests that’s not going to happen until closer to year’s end. This means Q1/Q2 earnings won’t be as bad as many expect, which means people are underweight risk. A reverting risk-cycle + a reopening China should help compress wide mortgage spreads, boosting demand in a supply constrained market, which is good for builders,” says the team, who like BlueLinx Holdings BXC, +0.44% and Builders FirstSource BLDR, +2.44%.
Stock futures ES00, -0.21% YM00, -0.23% NQ00, -0.26% are moving lower, while bond yields TMUBMUSD10Y, 3.547% TMUBMUSD02Y, 4.236% are headed the other way, along with the dollar DXY, +0.02%. U.S. crude prices CL.1, +0.61% are steady and gold GC00, -0.32% is dropping. Bitcoin BTCUSD, +0.73% spiked above $21,000 over the weekend and continues to trade above that level.
Goldman Sachs’ GS, +1.10% stock is slipping after earnings miss estimates, revenue falls and the bank reports higher provisions for credit losses. Morgan Stanley MS, +1.25% is still ahead. Last week saw a big big batch of Wall Street earnings that revealed beats from JPMorgan JPM, +2.52% and others, but also worries about headwinds.
Netflix NFLX, +0.81% will report later this week.
China announced its first overall population decline in decades as society ages and birthrates plunge. And it reported data showing its economy grew by 3% in 2022, less than half of the previous year’s 8.1% rate, the second-lowest annual rate since at least the 1970s.
Meme-stock investor Ryan Cohen has reportedly taken a stake in China’s Alibaba BABA, +3.41% and launched an activist campaign to get the e-commerce giant to buyback more shares. Shares are slightly lower.
The Empire State manufacturing index is ahead, in a week that will bring updates on retail sales and the housing market, along with other data and some Fed speak.
The founders of defunct crypto hedge fund Three Arrows Capital and crypto exchange CoinFlex are pitching a new crypto exchange that will focus on claims trading.
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The biggest macro decision of the week could come from the Bank of Japan on Wednesday, as speculation build that the central bank could end its ultra-easy monetary policy and yield curve control.
“The Bank has had to buy a record amount of Japanese government bonds to defend the policy since it was tweaked in December, with recent buying far exceeding prior peaks,” points out Gurpreet Gill, macro strategist for global fixed income at Goldman Sachs Asset Management.
For now, watch the yen USDJPY, +0.04% and JGBs, say strategists.
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|APE, -2.56%||AMC Entertainment Holdings preferred shares|
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