(Not Financial Advice)

Table of contents:

1. This week’s Recap

2. Credit Spread Breakout

3. Consumer Staples

4. $SPX Report

5. Bitcoin Report

6. Our Thoughts & What to look out for this week

7. Conclusion

This week’s Recap

This week in the financial markets was an interesting one. Oil fell 8 points, as we had predicted a pullback in last week’s report. Gold bounced off of the weekly 200-day moving average. Bitcoin is now at the 200-day moving average for both the weekly and the daily. Consumer Staples ($XLP) has a new 52-week low. 20+ year Yields keep dropping. Credit spreads broke out. The market is looking long-term bearish, medium-term bearish, and short-term bearish. Why? Let’s dive into our analysis.

Credit Spread Breakout

This week, the market has continued its break in credit spreads. This week, we’ve had the highest volume since 2020. For those who don’t know, credit spreads In the finance world, the "credit spread" tells us how much extra return we get for dealing with riskier borrowers. Suppose returns are lower for dealing with riskier borrowers (Lower-income consumers). In that case, Consumers won’t receive any loans; consumers will have less buying power, and lower buying power will negatively affect corporate earnings. Then lower earnings will negatively affect the equities and then, soon, cryptocurrencies.

Consumer Staples

Consumer Staples ($XLP) shows the amount of buying power that consumers have. Not only did $XLP break below the weekly 200-day moving average easily, but it has now melted down 12 percent in the last three months! $WMT had a low of 4.6 percent in a day. $AMZ has broken below a medium-term bullish trendline! What was supposed to be a defensive sector is now performing the second worst in the S&P year-to-day!

$SPX Report

The $SPX, on the technical side of things, is holding up a long-term bullish trend line nicely. $SPX has rejected the 200-day moving average and finished the week strong! On Friday, the $SPX rose 50 points as job reports came in strong. The move was driven mainly by tech ($XLK), which rejected the 50-day and 100-day moving average. We don’t think Friday’s gains will last too long, as the Fed’s balance sheet is still shrinking, but a relief is possible. The bull case is $4400.

Bitcoin Report

Bitcoin has been strong compared to equities in the last two months. Usually, Bitcoin follows equities. It also typically follows the Fed’s balance sheet. Is this time different for Bitcoin? Not a chance! In fact, on the weekly, Bitcoin faces many resistances. To name a few, it rejected the 200-day moving average on the weekly, the 200-day and 100-day moving averages on the daily formed a doji candle on the weekly (which signifies a big move), and the macro conditions aren’t favorable for it either. Sure, Bitcoin has held up well, but soon, when it goes down, it will go DOWN.

Our Thoughts & What to look out for this week

This week, after our analysis, we have concluded that the week will start well, but bank earnings will reflect the end of the week. If bank earnings are negative, expect the beginning of a possible recession. If bank earnings are reasonable, we will wait for a point to fade the pop. We always put the macro first, and the macro isn’t looking good. The Fed’s balance sheet is weak, credit spreads are increasing, and yields keep falling. It seems like an inflationary recession is upon us. Although nobody can predict the exact day and time, it pays to be positioned when it does happen. We’ve been bearish since August 31st, 2023. We are shorting pops, and the bull case for this week is $SPX to $4440. The bank earnings will decide the next move. 

Conclusion

As we analyze the current state of the financial landscape, it becomes increasingly clear that the trajectory of the balance sheet holds significant sway over equity markets. The recent dip in the Fed's balance sheet and the looming threat of stagflation underscores the need for caution and unwavering vigilance in the coming months.

While the first week of Q4 may offer a glimmer of optimism, it is tinged with uncertainty, primarily concerning bank earnings and consumers' financial stability. We remain steadfast in our commitment to making well-informed decisions to safeguard and nurture our investments.

Knowledge and adaptability are our most valuable assets in these times of economic fluctuation. This report has equipped you with invaluable insights to traverse the financial terrain more confidently. As always, we advocate for diligent monitoring of market developments and the exercise of prudent risk management.

We extend our heartfelt gratitude for entrusting us with your financial insights, eagerly anticipating the opportunities and challenges that await us on this journey.