Stop concentrating on the pivot and start taking note of the deceleration.
Rate Hike Poll
Holiday Sale
Are you tired of seeing another stop loss hit or, worse yet, being liquidated
Most traders come into the markets thinking that just because they CAN trade they know HOW to trade. The truth is, nobody enters the market with any real understanding of how and why the market moves like it does. They rarely know what indicators and candlestick or price action patterns are, and certainly don’t know how to use all of that in a way that will work for them. Sadly, they rarely even put forth the effort that’s required to learn and correctly practice this new skill set. That’s why 80% of all day traders quit within the first two years, with 40% of them day trading for only one month.
But what if you had someone who could show you the ins and outs; someone that could save you a lot of time and money in the process? How much would it be worth to you if you could turn things around and actually become consistently profitable? What would it mean to you and your family? What kind of life would you be able to live?
We are currently running a HUGE sale on our LMT Mentor Program which will begin on December 28th. If you join during our holiday sale you will get 55% off the normal price! And we also offer a financing option that doesn’t check your credit, work history, or anything else.
Secure your discounted seat before it’s too late.
We are also offering a Tier 3 holiday deal. Get 1 month of Tier 3 access for only $75! That’s $125 off the normal monthly price. And there is no commitment nor auto-renew, so you don’t have to worry about forgetting to cancel your subscription.
Get your discounted access to Tier 3 today and start absorbing as much education as you can!
*The Tier 3 holiday special is not stackable with any current access.
PPI surprises to the upside, but…
Like the jobs report the week before, the PPI (Producer’s Price index) surprised to the upside on Friday. The consensus was for a 7.2% YoY increase for November, but we got 7.4%. If one were just to look at that upside surprise they might assume the worst. After all, the Fed has continued to print 75 bps rate hikes for months on-end now because inflation is much higher than their preferred level, making a Fed pivot seem like a fantasy. But, like the jobs report, PPI is also showing a decrease from October’s 8.1%. As a matter of fact, that was the smallest gain since May 2021.
Core PPI, specifically, came in at 6.2% YoY for November, with consensus being 6%, but that was still a big move down from the 6.7% seen in October. What moved PPI? Goods were only up 0.1%. It was services, coming in at +0.4%, that did the heavy lifting in November. And for jobs and PPI, this is just the latest in a continued decline. Exploring price increases in 2021 and previous periods of inflation will give you some interesting data to help you move beyond social media soundbites.
To further put this decline into context, CPI (Consumer Price Index), the number used to denote inflation, hit a high of 9.1% YoY in June 2022 and has declined every month since then to the most recent print of 7.7% in October 2022. November’s CPI will be released in two days and is expected to increase by 0.2% which would be a deceleration from 0.4%
The Producer Price Index (PPI) - is a family of indexes that measures the average change over time in selling prices received by domestic producers of goods and services. PPIs measure price change from the perspective of the seller. This contrasts with other measures, such as the Consumer Price Index (CPI), that measure price change from the purchaser's perspective. Sellers' and purchasers' prices may differ due to government subsidies, sales and excise taxes, and distribution costs.
Does the market have things wrong then? As of Sunday, December 11th, the market is pricing on a 74.7% chance of a 50 bps rate hike as noted in the CME FedWatch Tool. Beyond that, there’s only a 25.3% chance of a 75 bps rate hike.
So, although stock indexes were down for the week (with the Dow posting its worst week since September) that appears to be more likely the result of the concern over whether or not the Fed can create a soft landing thereby preventing a recession rather than fear of another 75 bps rate hike. A look at the February contracts supports this narrative as they are pricing in a 39.9% chance of a 25 bps rate hike, 48.3% chance of a 50 bps hike, and 11.8% chance of a 75 bps hike.
The U.S. Dollar
The dollar saw a bit of a bounce and rallied up to the descending channel EQ denoted by the dashed line. It was rejected and sent down to the local support before it caught a bid and has rallied back up to the EQ once more. As mentioned in last week’s newsletter, I believe we will see a rally that will be extinguished no later than the daily pivot area. However, I also think we are likely to see one more push lower into the daily S1 pivot area before that particular rally takes place. Breaking out above the HVN at 106.320 will signal that I am wrong and that the rally is taking place now.
Oil (WTI Futures)
Since we are only a few weeks away from the yearly close, I zoomed out to the yearly time frame and it doesn’t look good. We can note that the current candle is an inverted hammer. This candle print after a bullish trend denotes a likely reversal.
What this candle actually shows us is demand was in control early but was not strong enough to hold on to control. As the year progressed, supply took control and pushed demand back down below the yearly open. Because it comes after a significant rally across a few years, it tells us that demand is fatigued. Follow through lower next year would give us a good initial target area of the upper-40s to low-50s. If you believe that we are heading into a recession next year, then this chart will make a lot of sense to you.
Gold (futures)
I have been talking about this large flat count for quite a while now. Back in 2016, I expected the flat to end just prior to the 2011 ATH. So, when it broke out in July 2020, I had to make a slight adjustment to the count which is seen in the current label. But as the markets have progressed another possibility has shown itself - that of a triangle.
As this larger chart shows, it looks like price is printing wave IV since we went off the gold standard. Wave II completed a simple zig zag. The theory of alternation states that wave IV is likely to be more complex, hence the flat or triangle counts shown above. This being as it is, the lack of a blow-off tops in stocks keeps me open to the possibility that wave V is currently in progress but that would have an initial wave V target of only ~2470. I would need to see further advance above 1882.50 to really have me thinking that may be the correct count. Dropping below 1719 should have traders leaning toward new lows below the 1618.30 swing low.
Finally, the local range from the August 2020 swing high looks like distribution. The March 2022 swing high that left a large upper wick and a significant spike of volume, after the range had been in progress for more than 18 months, is the indicator I am looking at to suggest distribution. Especially because we saw follow through lower that broke down below the range support. Another low below 1618.30 will signal that it is.
Bitcoin
Bitcoin hasn’t really gone anywhere over the past week. It remains above the local gray range resistance for now. But it did just break down impulsively below the local ascending purple support. The neon green highlighted area denotes what appears to be five waves up and currently a subsequent third wave down. If this is correct, then we will see price rally and breakout higher. The count off the November 21st swing low isn’t very clear, however.
We can also note that the fixed volume profile (blue and yellow horizontal bars) gives us a POC (point of control) at the horizontal red line which is where price is attempting to find support. The POC is the price level which had the most transactions within the defined period denoted by the light blue box. The thick blue line denotes supply, prior to price breaking out above it, and after that it flips to demand. So, there are multiple areas of support in the current area. This increases the odds that price will rally and breakout higher, but it does not guarantee it.
Ultimately, I would like to see price breakdown no further than the S1 pivot area at the thick blue line (demand). Reversing from there and breaking out above the horizontal blue pivot line will signal that price is likely going to breakout higher and take out the June 2022 low at 17567.45. Following that, we will want to see a breakout above 18140.62 and the descending blue resistance line. Doing so will increase the odds significantly that the lowest price is likely in, especially if that rally is impulsive.
Final Thoughts
Following Powell’s dovishness we saw a surprise to the upside for the jobs report and PPI. However, in both of those cases the overall trend continues to be down. Remember, Powell said that we haven’t seen the full effect of the aggressive rate hikes the Fed has pushed this year. By saying that, which was a 180 degree turn from his previous hawkish rhetoric, it suggests that they are concerned about it. This is important to note because it means they will be looking at more than just whether or not the reports come in hot. If you’re concerned that there may still be further destructive impact from what you have done, then you will pay attention to the overall trend as a guide. And the trend, as mentioned, continues to be down. So, while I don’t expect the Fed to stop raising interest rates at this time, it does seem that the most likely course of action is to slow down the rate hikes from 75 bps to 50 bps in December.
We are at an important juncture in all the markets. Bitcoin may be printing a bottom since June of this year. The dollar appears topped out as of September, but is currently at a significant support level. The Dow broke out above the mid-August swing high, but the NASDAQ and S&P have yet to do so as well and confirm that breakout, as mentioned in last week’s newsletter. Gold looks to have significant further downside, or more sideways at least. But that’s only if price doesn’t breakout above the level mentioned earlier. As such, my thoughts remain as they are but I am paying attention to any different information which may come in as the days progress that would suggest something different is playing out. As traders, it’s important to flow like water rather than being rigid like steel. We need to always be open to changing our opinion of what is happening when new information invalidates our position. At the end of the day, would you rather be right or profitable?
My Streaming Schedule
I stream simultaneously on YouTube.com/texaswestcapital, Twitch.tv/texaswestcapital, and Twitter.com/txwestcapital on Tuesdays and Fridays at 11:00 a.m. CST. I’d love for you to stop in and share your thoughts about the charts. We usually look at everything from Bitcoin to stock indexes, Forex to precious metals, oil and gas to individual stocks and crypto pairs as well as the DXY. And of course I do my best to explain the macro events and what they likely mean, which is often much different than the usual large social media influencer accounts.