If you are on holiday this week, you have chosen the wrong week. From Tuesday to Friday, there will be a massive data dump. From Tuesday, we get the and .
On Wednesday, we get , , , and the . Thursday, costs, , , and .
On Friday, the and the .
This is the type of data that will not only move the markets, but also set the tone and the dialogue for growth in the fourth quarter.
This means that the and rates will be more volatile, and the stock market will trade in dollars and rates.
US Dollar Ready to Go Higher?
The a dollar it looks like it wants to go higher from here based on what appears to be a bull flag that has formed. That pattern in the dollar could be set up for a considerable move higher back to 109.50 on the dollar rate.
The data coming in this week will have to support that narrative, and the Fed’s messaging will as well. However, based on how the dollar seems to be settling into this week, it looks like the dollar may get the hot data and a hawkish Fed.
Euro in a Bearish Flag: What to Expect?
Similar patterns are present in what appears to be a bearish flag, which makes sense given the weight of the euro in the dollar index. This bearish pattern in the euro suggests a fall back to around 1.03.
10-Year Consolidation Around the 5% Level
Meanwhile, we see that the is also consolidating around the 5% level and seems to be forming a bull flag as well, which suggests a 10-year index that is also likely to move higher and see a move possibly to that 5.25% level. .
It’s not that we’re just seeing higher rates, but we’re finally seeing spreads widen as investors reassess the rates they’re being paid for the amount of risk they’re taking.
This is happening not only in the US but also in Europe, with German and Italian sovereign spreads increasing, which has resulted in premium spreads here in the US increasing as well.
Widening spreads in the US led to rising levels of implied volatility for the stock market and higher earnings yields, which led to lower stock prices.
What pushes equities lower is not just higher rates but the repricing of risk due to those higher rates.
The market seemed to think that rates would stay low, and since, in the market’s view, rates would stay low, there was no reason to reprice risk. But that all changed.
So, as rates and the dollar continue to climb, the repricing of risk is likely to continue because it doesn’t appear that, at the current level, stocks are properly priced for bond yields.
The ratio shows that stocks are likely to underperform relative to bonds in the near term.
Biotech Sector May Continue Down
For the biotech ETF () fell back to levels seen in 2017, 2018, 2020 and 2022. The sad thing for this group is that it may not have ended falling either.
If the XBI should break support around $64, the next level of support comes at gaps from 2016 at $54 and $57.
Russell 2000 (IWM) Back to Its 2022 Lows
When biotech underperforms, small-caps underperform, which has the () back to its 2022 lows.
You can see how ominous the triple top looks in the IWM and what a break of the neckline at $162.50 could mean for the IWM, with gaps to fill around $127.
ARKK Innovation ETF Trades Near 2017 Low
This is a broader sign of long-term growth assets doing poorly, which is why the ETF is trading back near its low and level seen in 2017.
Magnificent 7 Stocks Begin to Price in High Rates
This is probably why the Mag 7, when added into one entity, looks the same as the SPY to IEF and the to IEF ratio. They tell us the same thing.
Stocks are repricing for a higher rate world, and the higher rates go, the more stocks will have to reprice.
So, if you’re trying to figure out when stocks will stop falling, turn your attention to the macro data, bonds and the dollar. They will tell you when a stock has ended before stocks will tell you when they have ended.
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