MARKET SENTIMENT
Hello traders, With this forum, I would like to share my personal market sentiment analysis to put into practice what I’ve learned and in the hopes that it could benefit other traders as well.
SPX
Starting with the S&P 500 (SPX), which can be used to gauge market sentiment on risky assets, Currently, the SPX is still holding a bullish stance at the 4050 support level and the trendline in a bull channel, testing the bulls to see if they can push the market higher and continue the bullish trend.
All eyes were on the U.S. inflation number last week, which showed a slowing of the easing of inflation, which can be interpreted as some warning signs on how it could convince the FED to remain hawkish. The SPX reacted with a bearish trading session that carried the price to test the support level and trendline that are currently in play.
Personally, I believe that in the absence of a strong catalyst, the trend has the potential to evolve into a trading range with key levels between 4050 and 4200.Looking at this week’s economic calendar, the FED minutes could play a role in providing a peek into the minds of the FED and their plans moving forward, which could have the potential for some volatility. However, the FED is expected to state its hawkish stance on future rate hikes.
BONDS
Next, looking at the US 10-year bond yields, we have yields that have rejected the previous December 2022 resistance level, which drove the dollar basket lower on Friday. The correlation in falling yields would imply rising bond prices, which aligns with the previous SPX sell-off on the inflation number release. So it is possible for see risk-on investors to take profits from the previous bull swing and possibly reallocate to a risk-off asset at the moment.
Not to mention that the 10-year bond yields to 3-month bond yields are still inverted, indicating that the risk of an economic recession remains.
VIX
Looking at the VIX, which can gauge market sentiment, it is still hovering over the 20 level over the past trading sessions, even from the early part of February. Such sideways behavior may indicate that the market is still unsure whether it should remain a risk-on environment or revert to a risk-off environment, and a strong catalyst may be required to determine where the market should go next.In the meantime, I do see some degree of uncertainty in the markets from the VIX.
DXY
Finally, we will look at the DXY, which still shows price hovering over the bearish channel. Even after the small bullish breakout on Wednesday to the upside, the bulls quickly faced strong bears that prevented the price from going any higher. which in some cases might be odd as the FED is still hawkish and expects more rate hikes to come in the upcoming FED meetings in their attempt to drive inflation back to their 2% target.
Looking at the economic calendar, we do have quite a busy week that has the potential to cause the volatility the market may need to move the market. While we wait for the UK PMIs, the CAD Core CPI, the RBNZ interest rate decision, and the EUR CPI.The main events would be the FED FOMC minutes, U.S. GDP, and the Core PCE price index (FED favorite inflation data), which can give a clearer picture of what to expect going forward.
P.S. My opinions are my own; please do your own due diligence as trading carries a high degree of risk and could lead to substantial losses.