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2022 October 5th EST Daily Memorandum

Updated: Oct 7, 2022

Disclaimer:

Nothing contained in the following content constitutes an offer, solicitation, or recommendation regarding any investment management product or service, or the offer to sell or the solicitation of an offer to buy any security; The following content is purely for information only and is based on information available at the time it was created. It does not take your financial situation or goals into consideration, and may not be suited for you.


Table of Content
  1. Current Thesis

  2. Executive Summary - prior day as the anchor

  3. Today at Close - Higher Level Overview & Analysis Based on Our Quantitative Indicators for selected Indexes & Indicator heat charts

  4. Expectations & Analysis for Tomorrow in Detail

Current Thesis

The thesis of interest rate hikes will continue to govern trades from the current to earlier next year. The highest projected terminal rate is expected to be around 4.51 - 4.70%. As a result, rising rate hike expectations continue to drive the underlying credit market-related indexes. The general thesis for the remaining year is outlined in the following article: Is Volcker Shock Coming Back?


Executive Summary

We see significant downside risk to the S&P 500, NASDAQ, and Dow Jones Industrial Average and remain bullish on the credit market and reverse index as indicated in the 2022 September 27th EST Daily Memorandum for the long term.


We call the official ending of 2022 September 28th EST Daily Memorandum set up on credit market, this should lead to an end of ST relief rally as well. Today, the market pulled back and wrestled with the bulls. The market has currently priced in the potential of Fed pivot based on job openings, with the August US higher than expected PCE and the EU sliding into recession on PMI numbers, how the market reacts to the unclear policy turns may still take time to materialize. Further, we may not see central bank actions materialize in the short term as this is a risky step Fed currently cannot take and Fed has also reaffirmed today it will continue to hike until reaching the target 2% interest rate.


For setup tomorrow:

 

Continue Below


Tomorrow we may see the market continue to fluctuate and leading to a potential end of this relief rally. In the longer time frame, we are far from out of woods and the trend is very bearish. We may have a bearish head and shoulder formation here on the 30m chart and this may also point to the bear market rally ends. However, the market may continue to fluctuate before the data is released by the federal reserve this month.


For tomorrow and throughout this month, we need to monitor potential sudden pivots caused by the flow of side money and additional news shocks- i.e we are risking deflation, u-turn hawkish fed policy. However, ever-worsening China's internal struggles, the collapse of the UK bond, the never-ending Ukraine war, the energy crisis, the inflation, the COVID, the meta-narrative of dichotomy & conflict, deglobalization, supply chain shift, and the arms race. At this point, neither one nor two or three central banks can save the recession alone. A united front may not form.


Today at Close

Legend

- tive: trending negative - tive expansion: trending negative with expanding in average trend - tive reduction: trending negative but with a reduction in average trend

- tive confirmation: confirm the negative trend

flat: in an unclear and horizontal fluctuation

pivot: a potential pivot of the current trend

+ tive: trending positive

+ tive expansion: trending positive with expanding in average trend

+ tive reduction: trending positive but with a reduction in average trend

+ tive confirmation: confirm the positive trend


SPX

The long-term trend has not changed 2022 September 27th EST Daily Memorandum. On minutes to-hour charts, the index experienced a pullback yesterday and reclaim upward momentum. However, at the market close, we see downward momentum forming on the index. This can be the end of the relief rally.

Our Quantitative Indicators

Money Flow

​Momentum

​Trend

​15m Chart

- tive expansion

- tive expansion

- tive

1-hour Chart

flat

pivot

+ tive

​4-hour Chart

+ tive reduction

+ tive

​​+ tive

​Daily Chart

+ tive expansion

+ tive expansion

​​- tive

​Weekly Chart

​- tive expansion

​- tive expansion

​- tive


DJI

The long-term trend has not changed. On minutes to-hour charts, the index experienced a pullback yesterday and reclaim upward momentum. However, at the market close, we see downward momentum forming on the index. This can be the end of the relief rally.

​Our Quantitative Indicators

​Money Flow

​​Momentum

​​Trend

​15m Chart

- tive reduction

- tive expansiion

+ tive

​1-hour Chart

flat

+ tive

+ tive

​4-hour Chart

+ tive

+ tive

+ tive

​Daily Chart

+ tive expansion

+ tive expansion

- tive

​Weekly Chart

- tive expansion

- tive expansion

- tive




QQQ

The long-term trend has not changed. On minutes to-hour charts, the index experienced a pullback yesterday and reclaim upward momentum. However, the money did not follow. We may have a bearish head and shoulder formation on the 30m chart.

​Our Quantitative Indicators

​​Money Flow

​Momentum

​​​Trend

15m Chart

flat

- tive reduction

+ tive

​1-hour Chart

flat

+ tive expansion

+ tive

4-hour Chart

flat

+ tive reduction

+ tive

​Daily Chart

+ tive expansion

+tive expansion

- tive

​Weekly Chart

- tive expansion

- tive expansion

- tive


Credit Market TMV


We can continue to see an increase in the federal fund rate in the short and long term as the internal indicators start to realign again, pointing to positive. The reaffirmation from the federal reserve it will continue to hike the rate gives another booster to the TMV. The action in the credit market will lead to equity market follow-up. Further, we have started to see the correlation between the credit market and equity market starting to break down in a shorter time such as a minute to 4-hour time frame, albeit on a longer time frame the relationship is still intact. This can be an early sign of monetary policy malfunction. In a more simple term, the brake may be starting to be overheated.

​​Our Quantitative Indicators

​​Money Flow

​Momentum

​​​Trend

15m Chart

flat

pivot

+ tive

​1-hour Chart

- tive reduction

- tive reduction

+ tive

4-hour Chart

flat

+ tive expansion

- tive

​Daily Chart

+ tive expansion

- tive reduction

+ tive

​Weekly Chart

+ tive expansion

+ tive

+ tive

Expectations & Analysis for Tomorrow

We call the official ending of 2022 September 28th EST Daily Memorandum set up on credit marketing, this should lead to an end of ST relief rally as well. We have started to see the correlation between the credit and equity market starting to break down in a shorter time such as a minute to 4-hour time frame, albeit on a longer time frame the relationship is still intact. This can be an early sign of monetary policy malfunction. In a more simple term, the brake may be starting to be overheated and the soft landing becomes less likely.


The market is pricing in the potential of the Fed pivot on monetary policy. With the August US higher than expected PCE and the EU sliding into recession on PMI numbers, how the market reacts to the unclear policy turns may still take time to materialize. The market may not buy the narrative. Even with the UN stepping in, the united front may not form under current circumstances as we are facing the most aggressive hikes by central banks in this century. The balance between unemployment and inflation may fail to achieve.


We may not see central bank actions materialize as the UN does not have the ability to directly affect the decisions of individual central banks, it only asked (neutral). Moreover, the UK reverted to its original position with a loss of credibility as a regulator (slight -tive for equities compared to a week ago) and the Fed message remains vague and unclear (slight +tive for equities compared to a week ago). Furthermore, even with a complete u-turn on monetary policies, we still have many issues to resolve in order to restore our economy which are the fundamental underpinnings of chaos revealed on the economic level.


Tomorrow we may see the market continue to fluctuate and leading to a potential end of this relief rally. In the longer time frame, we are far from out of woods and the trend is very bearish. We may have a bearish head and shoulder formation here on the 30m chart and this may also point to the bear market rally ends. However, the market may continue to fluctuate before the data is released by the federal reserve this month.


For tomorrow and throughout this month, we need to monitor potential sudden pivots caused by the flow of side money and additional news shocks- i.e we are risking deflation, u-turn hawkish fed policy. However, ever-worsening China's internal struggles, the collapse of the UK bond, the never-ending Ukraine war, the energy crisis, the inflation, the COVID, the meta-narrative of dichotomy & conflict, deglobalization, supply chain shift, and the arms race. At this point, neither one nor two or three central banks can save the recession alone. The supply shock is persistent.




Disclaimer:

Nothing contained in the proceeding content constitutes an offer, solicitation, or recommendation regarding any investment management product or service, or the offer to sell or the solicitation of an offer to buy any security; The above content is purely for information only and is based on information available at the time it was created. It does not take your financial situation or goals into consideration, and may not be suited for you.


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