After a strong two months, some weakness can be expected - Thomas Ng 19 Dec 2022
Updated: Dec 29, 2022
Will swaggy King Dollar drop his crown in 2023??
On Monday 19 Dec 2022 11.38pm, I emailed Clients my latest post titled 'After a strong two months, some weakness can be expected'.
Below is the full transcript for your perusal:
'Dear Clients . My helper is away for 3 weeks for her long overdue home leave while my dealing assistant is away for her annual leave, so i must say time to me now is of essence & a luxury! So many things to do, so little time!
Thus allow me to skip straight to my monthly write-up on the world's most important index (S&P500 Index aka SPX) plus a bit on HK/China outlook!
Let's recall what I said 1.5 months back on 2 Nov: '..I would love to see Bulls usurping & get into the 61.8% to 78.6% retracement levels (corresponding to SPX 4008 & 4148 levels respectively). The 78.6% retracement level (4148) also marks a confluence of resistance points of sorts..'
'..On a side note, I'm sure many of you are NOT aware of a certain unscheduled FED meeting held behind closed doors on 3 Oct 2022, under 'expedited procedures'. More info here: https://www.federalreserve.gov/aboutthefed/boardmeetings/20221003closed.htm..'
. Reference https://tinyurl.com/fedpivot .
What actually happened?
On 1st & subsequently 13 Dec, SPX hit a day high of 4100 which is about 48 points or 1.2% away from my 2 Nov upper target level at 4148. Not bad for a 'Bull Usurp'?
On 23 Nov, Federal Reserve officials expect to switch to smaller interest rate increases “soon,” according to minutes from the November meeting. Perhaps the 3 Oct unscheduled FED meeting held behind closed doors truly hinted at a pivot!
Chart 1 - S&P500 Index (SPX) Daily Chart, 10-mth
What's next for Q1 2023?
Macro viewpoint: Yellen's 'substantial reduction in inflation' interview echoes my 'peak inflation' view communicated to Clients in July 2022
In her 12 Dec interview with CBS “60 Minutes”, Janet Yellen (US Treasury Secretary) said she expects “a substantial reduction in inflation” in the year ahead, as long as there’s not an unanticipated shock to the economy. She continued to say that the underlying causes that have led prices to skyrocket to near 40-year highs are being resolved and that shipping costs have declined, delivery lags have shortened and 'gas prices are way down'. Click here for the interview (https://twitter.com/60Minutes/status/1602092635572895744)
Wow! That sounds pretty similar to my July pointers about 'peak inflation', no?
You can read up my full writeup here on peak inflation: https://www.thom-ng.com/post/mr-market-has-been-obliging-my-bullish-script-very-nicely-thomas-ng-25-jul-2022 .
. Technical viewpoint: Line of least resistance for Dec price action is down, short term wise
Reference to the attached S&P500 Index (SPX) Chart 1, with the inability of price action to break past the 2022 red (dashed) downtrend channel line and hold above the dark red 200-day EMA authoritatively, I must admit the line of least resistance is down, short term wise.
Further, with the breakdown of the small Head & Shoulders pattern neckline (see the 3 green inverted 'U'), it appears the short-term pattern-implied target points price action towards SPX 3740 - 3720 again.
Lastly, with price back to the lower segment of the Bollinger Bands, we now need to see how Mr Market reacts when price bounces back to the midpt of the Bollinger Bands. Thus,
- if price action bounce up & reverse down again at the BB midpoint line > expect to see further weakness
- if price action re-claim back the upper segment of BB > expect neutral to bullish resolution
To be clear, my bias is still towards a bullish outcome over the next few months.
Chart 2 - TNX (US 10-year bond yield) & DXY (USD Index) vs TLT, GLD, SPX, NDX, ARKK & BTC
Oh by the way, since the strength* of US 10-year bond yields (ticker TNX) & USD Index (ticker DXY) have been the ones creating most of the damage to literally almost all other asset classes in 2022, a major reversal (ie down) on TNX & DXY is likely to allow many other asset classes to catch a bid come 2023. See attached intermarket analysis Chart 2.
*bond yields correlation with DXY is very high in 2022 as they form a disastrous feedback loop
I am long / will be long the following ETFs in 2023:
TLT (iShares 20 Plus Year Treasury Bond ETF)
GLD / GDX / SLV (Precious Metals)
SPY (S&P500 Index)
EEM (Emerging market)
Lion OCBC Tech ETF (Hang Seng Tech ETF)
Tracker Fund of HK (Hang Seng Index ETF, 2800.hk)
Pls drop me a line if you need me to explain the rationale behind these major ETFs and/or if you wish to lower your single stock exposure risks. Otherwise pls pick my brains for individual stocks or let me analyse for you using Charts on the stocks that you have in mind.
Macro/Technical - a side note on HK/China
On 25 Oct 2022, a client asked me for my views on the Chinese/HK markets. Pls see below my whatsapp reply to said Client A.
Separately, I also responded to another client's comments after I broadcast out to my clients with regards to a crucial China Press Briefing on Covid policy in the afternoon of 29 Nov 2022. Pls see whatsapp reply below to Client B.
As of today, both the Hang Seng Index ETF (2800.hk) & the SGX-listed Lion OCBC HSTech ETF have both risen 29% & 53% (trough to peak) respectively since 25 Oct 2022. Again, not too shabby for my 'bias to an eventual bullish outcome'.
With positive developments being announced weekly from China/HK as they shift away from zero-covid policy and re-opening the Chinese economy, the best 2 things you could do in 2023 will be: 1) consider to buy on weakness for both HSI & the Hang Seng Tech ETF, not to mention the potential stocks with regards to the opening of China / HK such as Genting Singapore & YZJ Financial. I will broadcast the trading/investment angle on them separately.
2) drop me a line if you wish to onboard my 'Thomas Ng's Investment Angle Broadcast List' with curated and TLDR angle on market outlook & individual stocks trading/investment angles spanning SG, HK & US!
As usual, Live Long & Trade Well. . Thank you & regards . Thomas Ng, CMT Principal Trading Representative 首席股票经纪 www.thom-ng.com . #plsreaddisclaimer #chartforillustrationonly #spx19dec22 #TNX # DXY #FEDpivot #Chinareopening #befluid #wytant #livelongandtradewell Chart source: tradingview
Image Source: www.axios.com/2019/03/11/jerome-powell-fed-dollar'