The NFP surprised to the upside but markets rallied anyway?
Things are not always as they appear, and then some...
The Non-Farm Payrolls Report was released last Friday with job creation surprising to the upside. Whereas the consensus was for an increase of 200K jobs, we actually saw it grow by 223K jobs. But why did the market rally?
Even though payrolls came in 10.3% greater than expected, they were still lower than last month’s downwardly-revised 256K jobs. So, another month has gone by and we continue to see a trend in declining job growth. Additionally, avg hourly earnings (YoY)(Dec) surprised to the downside at 4.6% with concensus of 5%. This is a big miss and, maybe even more importantly, it was less than last month’s downwardly-revised 4.8%.
Remember, the Fed is watching the hourly earnings and want to see it continue to drop because workers earnings slowing down means they have less money to spend thereby decreasing demand for products and services which should help lower inflation. Unemployment did drop to 3.5% while it was expected to hit 3.7%, and the previous month’s unemployment was revised downward from 3.7% to 3.6%.
Beyond the NFP, we also saw factory orders slow down dramatically. Concensus was for -0.9% but it came in at twice that at -1.8%. Furthermore, last month’s reading was revised downward from 1.0 to 0.4%. The overall unexpected contraction was the steepest pace US services sector activity has seen in 2.5 years. With all of this continued deceleration of other metrics and contraction of this one, the Fed can talk big all it wants but it will not follow through if the market does not give it a reason to do so. Next up is the CPI which will be released on Thursday, January 12th.
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The US Dollar (DXY)
Keeping the chart simple, there’s little reason to believe we see a strong rally. Friday’s rejection has continued into this week’s open and shows no sign of abating at this time. The 100 handle continues to pull the DXY toward it like a magnet. More notably, the DXY is below the weekly pivot as well. Rejection at that weekly pivot should have traders expecting a target of the weekly S1 pivot area around the 93/4 handles.
Bitcoin Liquid Index (BLX)
There’s little not to like about the Bitcoin chart. We are finally seeing a breakout above the daily pivot which suggests we could be seeing a real reversal off the swing low. This would align with the bottoming process I’ve been mentioning I believe is in progress since the June 18, 2022 low. I have drawn out the idealized Elliott Wave count based on minimal expected retracements and extensions, if we see a rally print. I added the volume profile on the left side of the chart afterward and it does appear to align with the count; we just need to see price follow through higher. Breaking down below wave (ii) will invalidate the count.
As you know, I have been mentioning Litecoin as a buy, most recently, since the ~$50 area. The new weekly pivots are in and we can see it sits just above the current price, just prior to the four year range EQ. An impulsive pop higher from here will have price breaking out above the confluence of resistance between that weekly pivot, range EQ, and the descending channel. Doing so will activate the 351.08 target.
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The last time we looked at Ethereum, the ascending dashed line was the support I was looking for price to hold against the orange resistance. As we can see, it broke down but price caught around the descending channel’s EQ and has rallied almost back into the orange resistance. This has carried price impusively above the daily pivot and 50 MA (blue line), all the way into the daily R1 pivot so far. Having rallied impulsively above the daily pivot and into the daily R1 pivot should signal that price is going to target the R5 pivot at a minimum. A pullback to the daily pivot should give price enough energy to breakout impulsively above the descending channel resistance and 200 MA (red line), which will add confidence to the argument that the low is in. I am interested in the 1700, 1922, and 2130 targets at this time. Breaking back down below the ascending red support would invalidate this analysis.
Multi-decade cup and handle pattern?
Finally, we have this 40+ year possible cup and handle pattern on silver. We have to be careful on very long-term patterns like this as they often don’t play out as expected. But, if it does, then it’s possible we could see silver rallying toward $600+, based on the height of the cup. As we can see, last year printed a long lower wick on the doji candle and this year has opened above the pivot. This could be the start of something quite exciting for the metal.
The cryptocurrency market is showing signs of life into the second week of 2023. So, traders should be sitting up and paying attention. There is still a lot of work for price to do to add any kind of significant confidence to the idea that a low may be in. But as long as price remains above the daily pivot, we should continue to look higher. Breaking out impulsively above the weekly pivot should really have you interested if you aren’t prior to that.
We will see how stocks move this week, but there are many that are looking like they’re ready to rally as well. Remember, we want to see the Nasdaq and S&P breakout above their mid-august swing highs to confirm the Dow’s previous breakout. If we see that, then there’s little reason to believe they won’t rally to new all-time-highs. Healthcare is rarely a bad sector to look into, but I’m watching tech quite a bit, myself. Beaten down stocks with charts like TSLA, AMZN, META, ZM, NFLX, COIN, RIOT, MARA, ARBK are what I am most interested in at this time.
The Fed meets again at the end of January/beginning of February and they will likely raise interest rates another 25 bps. This is the sentiment held by traders as published by the CME FedWatch Tool. Currently, that sentiment is a 77.1% chance that we see 25 bps and a much smaller 22.9% chance that we see 50 bps. It’s still early in the month, but the data continues to show the economy and inflation decelerating which bodes well for likely slowdown in the Fed’s interest rate hikes as well.
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