Edition #24 - 6.14.2021
Fed Balance Sheet Update and Technical Analysis on U.S. Equity Indices
Economy:
No major update in terms of the economic environment. The only thing I’m interested in sharing is an update on the Federal Reserve’s balance sheet, which continues to create new ATH’s. At the present moment, the Fed’s total assets are $7.952Tn, or 36% of GDP. Keep in mind, the ECB’s assets/GDP is 77%, and the Bank of Japan’s is 133%. Here’s an updated chart from Bloomberg:
We’re going into an important week in terms of economic data. Here are the main reports I’ll be watching this week:
Tuesday, June 15: Producer Price Index
Wednesday, June 16: FOMC Economic Projections, statement, and press conference.
Thursday, June 17: Philly Fed Manufacturing Index
Stock Market:
Considering the strong performance of equities to finish the week, I thought it would be useful to post my technical analysis on each of the 4 major indices with some brief commentary.
Dow Jones Industrial Average ($DJX): September 2020 - Present
The Dow is hovering right near ATH’s and coiling along the 21 day exponential moving average (EMA) in yellow. We can notice how the 21, 55, and 200 day EMA’s have acted as strong dynamic support levels during these strong market conditions. From a structural perspective, one of the best things price can ever do is break to new ATH’s, which did not happen last week upon a retest of the white price level. With that rejection, I’ll be looking for price to rally on either the 21 (yellow) or 55 (teal) day EMA’s in order to attempt to create ATH’s once again.
S&P 500 ($SPX): September 2020 - Present
Structurally, the S&P looks much stronger than the Dow. We can see that the tight wedge pinch that I’ve pointed out several times in this newsletter continues to work at the lower-bound as support. In order for this wedge to stay intact, price will need to rally substantially this week. If the wedge fails, I will be looking at the 55 day EMA (teal) as the next reasonable level for price to find support. Even if we examine price behavior in September & October 2020, price temporarily dipped below the 55 day EMA for several days before rallying to record highs. This is key: just because price falls below the 55 day EMA, that does not mean bullish momentum is gone. It’s now been 1.5 months since we retested the upper-bound of the wedge. I expect that could change rather quickly.
Nasdaq-100 ($NDX): June 2020 - Present:
I shared a similar chart of the $NDX earlier last week in Edition #19. Since that post, price has continued to rally higher, now concretely within the grey resistance box. It’s important to note, this is merely potential resistance based on the past behavior of buyers/sellers at this price. If upside momentum breaks this ceiling, I believe that will yield a strong signal for tech stocks. Unlike the Dow and the S&P 500, the Nasdaq is not adhering to the 21 or 55 day EMA’s as dynamic support levels. In this sense, this is where my interpretation of the moving averages focuses merely on the relationship between them. As short, medium, and long-term indications of trend & momentum, the EMA’s are showing that the bull-market is still very strong. How can we confirm this? Each EMA has a positive slope, in which the 21 EMA > 55 > 200, and the EMA’s aren’t oscillating or coiling around each other in an indecisive manner. In terms of this chart, all of my attention is on how price reacts & behaves within this grey resistance box.
Russell 2000 ($RUT): August 2020 - Present
While the Dow and the S&P have had steady ascensions higher so far YTD, the Nasdaq & Russell have been fluctuating in a sideways consolidation since the strong initial start to the year. Despite the differences in structure, the underlying pattern in all four of these charts is consistent: the exponential moving averages are trending positively & all of the indices are currently at prior resistance levels. The Russell is no different, breaking above the grey resistance box, retesting the level, and potentially gearing up for a strong continuation move. It still needs to break above the ATH’s from March 2021, so I’ll be paying close attention to see how the index behaves at those levels (which is likely to happen this week). All in all, I expect this will be a key week for U.S. equities that could set the tone for the next month. A strong finish to end the quarter could bode well as we move into the second-half of the year.
Cryptocurrency:
No major update in terms of crypto, although I have been posting some insightful charts on Twitter (here). I don’t want to re-hash that analysis on here, but I highly recommend checking out the developments that I’m seeing in terms of price structure if the above analysis on U.S. equities was of interest to you. At the time of writing (around 9:00 pm ET), BTC is currently trading at $39,060 and ETH is priced at $2,494.
Until tomorrow,
Caleb Franzen