Money Market Mentor — 28th February 2023

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Welcome to our weekly market snapshot, where we serve up a brief sample of the industry insights we share with our members.

This week, we’ll consider if the S&P 500 can pull the rest of the market up by its bootstraps, which currency has just joined my list of shorts and whether bitcoin is due a second wind. 

Dipping Dow has further to fall

Last week my bearish predictions came to pass with the Dow Jones, Nasdaq and Russell all sliding below the support levels I targeted.

The Dow and Nasdaq, in particular, look primed for further falls and my new portents of gloom are set at 32,400 and 11,700 respectively.

The only fly in the ointment could be the S&P 500, which is now sitting at a support level of 3,950. Could it now take on an Atlas role, helping to lift the other indices, or is it more likely to slide down to join them in the mire?

My hunch is on the latter, although don’t be surprised to see a brief bounce in early March before things come down to earth again. I’m prepared in the event of an S&P surge, and should it clear 4,035 I will stop selling and — at least temporarily — switch to longs.

Guerilla tactics in play as FX picture get murkier

Being long on the USDX has served me well recently with a good run higher last week, However while there may still be further to climb, the sweet spot of the bullish seasonal pattern has passed and inconsistent price action is likely to be the norm in coming weeks.

I’ll stand my ground for now but with corrective price action forming a bearish rising wedge, the exit ramp for me is set at 104.30. Any breakouts below this and I’ll switch to short Dollar trades. Meanwhile I’ll keep an eye on movements in the 10-year Treasury yields; if they break 3.98%, I’ll be expecting the Dollar to go on another run higher.

The New Zealand Dollar fell to 0.6200 against the greenback last week, which qualified the forex pair to join my short list. Since then it looks to be testing the waters at this level and I will need price action to confirm any new selling going forward. Breaks above will invalidate any shorts.

The lull before the next crypto barnstorm

Bitcoin is currently retracing but it would take a significant slump to change my bullish bias. We may see a move down to 22,500 but I’d be shocked to see it go far below.

The welcome return of the Commitments of Traders’ report on Friday has given a better view of this market, but as things stand there is still a three-week lag in the data.

For now I’ll stick to my guns, and I’m anticipating we are at the start of the next bullish cycle that could eventually go up to 45,000. There seems to be strong respect out there for the weekly pivot, so this will help confirm any market moves as well as entries of new trades.

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