Weekly Summary Analysis, Jan. 22/23
Jan. 22, 2023
Weekly Summary Analysis
The net-transfers continue to be positive.
The seasonal credit pullback will weaken the SPX in the short-term.
Technically, the market looks overbought in the near-term, but longer-term it is working its way out of the fractal trading-range.
The debt-ceiling will be a fiscal and psychological drag on the stock market until the political and economic self-harming ends, but for now the spending can continue thanks to the Treasury cash balance (TCB) and the "extraordinary measures" available to the Treasury.
The 20-day average of the daily net-transfers continues to rise following the January 17 tax-take; it now stands at +$4.55B/day.
The 8.9% SS increase, and the increased interest-income (because of the higher interest rates) have helped maintain a positive net-transfer rate into the economy.
There is a big mid-quarter interest payment in the middle of February (should be $50B+) that will give the net transfers an increased boost.
The "debt" has reached its limit.
The Treasury took money from government agency accounts and shifted it to the Treasury General Account (TCB). The TCB now has $450B that is available to cover spending.
Longer-term, the SPX continues to follow the slope produced by a +$2T annual net-transfer (chart below).
As pointed out earlier, there is a seasonal weakness in credit-creation at the start of each calendar year. This year, the pattern is being followed (blue-ovals below).
All major loan-types are lower, except residential real estate; even credit card debt has come down.
Lower bank credit-creation has affected liquidity, but liquidity has started to recover in the latest week in spite of lower credit (chart below). This makes us expect the SPX to move sideways in the short-term--supported by the liquidity, but not launched into a major rally until credit starts to recover. As we move into February and closer to the mid-quarter interest payment, the SPX should break out into a serious rally.
The HY spread is still in a bullish trend, but it is experiencing a short-term counter-trend (chart below).
The foreign reverse repurchase model is pointing to a stronger SPX.
The reserves and deposits models are giving conflicting prognoses; deposits inferring headwinds, while reserves are implying tailwinds. This fits with our expectation of a sideways-moving SPX (two charts below).
Just as a reminder, the reserves and the deposits models seem "off" sometimes because the lag is 3-5 weeks, so I use the average rather than 'smear' the model across three weeks. Also, they are one-factor models that do not include other influences. They provide a probable-tendency that we can combine with the other models.
The SPX is starting to climb out of the fractal trading-range.
The BB-width model is in a short-term weak period after the sharp up-spike.
The thrust has overshot the topping zone, like it did in May 2020 (red-ovals below). This suggest a "breather" like we saw in June of 2020 before continuing to rally.
The IT volume oscillator RSI has plateaued above 70 which means the chances of a pullback in the SPX have increased.
The McClellan oscillator RSI has turned lower from a sub-70 level . This generally leads to minor weakness in the SPX (blue markings below).
Since spikes in the %-above-the-200-day MA correspond with local highs in the SPX, we can expect the SPX to take a short "breather", but the bullish divergence that has developed increases the odds of a quick recovery.
The weekly SPX has broken above the Raff upper-line and is trading between the 50-week MA and the 20-week MA. A break above the 50-week MA would be a bullish signal.
At the daily-scale, the SPX technicals are neutral and the price is sitting at first resistance (200-day MA). Support is the combination of the 50-day MA and the 38% Fib retrace level.
QQQ has closed above the 50-day MA, and right at the Fib 24% retrace. Next resistance is at the 200-day MA, and support is at the 50-day MA followed by the 268-275 gap. Technicals are elevated, but they can stay elevated if the QQQ essentially moves sideways.
IWM is sitting between resistance at 187.5 and the triple support at 180 which corresponds to the 50 and 200-day Ma and the 38% Fib retrace. As with the other two major indexes, we expect a sideways movement in the IWM over the next week or so.
In summary: The net-transfers continue to be positive. The seasonal credit pullback will weaken the SPX in the short-term. Technically, the market looks overbought in the near-term, but longer-term it is working its way out of the fractal trading-range.
Open and closed positions: