Energy is In Focus This Week

Macro Picture
China's reopening trade is still in effect. Watch for some chinese names to continue rallying.

Last week inflation expectations dropped and consumer confidence increased. Jobs numbers showed that we still need downward pressure on wages and employment numbers.

The 1.7 trillion dollar military spending bill indicates that the world's going to last well into next year. Putin is ramping up his War efforts and training for the missile batteries that are going to Ukraine from the United States will take several months.

The Federal Reserve is still in rate hike mode. They are still talking about higher rates for longer, so we should still assume bad news is good news when economic data is released. But when the data gets too bad the recession fears will overtake inflation fears and this would more than likely send the market on a downward trajectory.

The BOJ's Kuroda dismisses near-term chance of exiting easy policy on Monday as he brushed aside the chance of a near-term exit from ultra-loose monetary policy. Kuroda will be leaving office next year so the current moves in Japanese markets are showing that investors are more focused on the possible change in policy after the resignation.

Moscow is ready to resume gas supplies to Europe through the Yamal-Europe Pipeline, Russian Deputy Prime Minister Alexander Novak told state TASS news agency. This coupled with the debilitating winter storms in America will impact natural gas prices this week.

Shipments of smartphones within China in October fell 27.2% year on year to 23.78 million handsets, a report from the China Academy of Information and Communications Technology said on Monday. This might put some pressure on Apple's share price.

Japan insurers in talks with reinsurers to resume coverage in Russian waters. This could possibly increase the supply of some commodities which could bring down prices slightly or at least keep some commodity prices from climbing. Three Japanese insurance companies that are set to halt marine coverage of risks related to the war in Ukraine starting next month are in talks with reinsurers to resume those operations, they said on Monday.

Macro Trends
The week started off on a slightly bullish note. Futures contracts tied to the major indices in the US opened with a slight gap up. The NASDAQ led the way with the biggest gains so far. S&P 500 futures are bouncing off of recent lows after retracing over 6% from this month's highs. This bounce in price is happening near a long-term fibonacci level which is a very strong support level in theory. Technically speaking the S&P 500 futures need to make higher highs above the 3920 price point before you can consider an uptrend forming. That is the major resistance level to watch at this point. I've mapped out the nearest technical levels in the picture below.

VIX Future's short-term trend recently flipped upwards which is bad for equities but the price is currently range bound between the $23 and $25 price points. Watch out for a potential bounce around that $23 price point. Further dated futures contracts for the VIX are calling for more upside in the future so be careful going long with the VIX showing red flags.

The Hang Seng index is near a major resistance level that has held its price down since last February. The Chinese reopening trade is still in effect but watch out for sellers near this major trending resistance level. If selling does occur then it may be a good dip opportunity since the Chinese economy should be reopening as they are easing covid restrictions. This time around the supposed reopening seems legitimate as compared to the times in the past when the Chinese government stated that the economy would be reopening only to close it back down within weeks. Remember that the long-term trend is still down so be careful not to over-allocate your capital into chinese equities just in case this reopening turns out to be a fluke like in the past.

The dollar Index is still trending down and is currently in a technical wedge candlestick pattern on the very short-term time frame. It's price is ready to break out to the upside or the downside. In the current macroeconomic environment a downward trending dollar should be good for equities and gold. Gold and silver are in an ascending wedge candlestick pattern. Any dollar moves up or down should inversely affect gold and silver. Watch the dollar index for any big moves that could effect the precious metals. Also pay attention to the price fluctuations in the Japanese Yen and the movements of the 10-year Japanese Treasury yields as the BOJ's policy shift is having an effect of global bond and forex markets. If I remember correctly the BOJ is pegging the 10-year Japanese yields between teh 25 and 50 basis point levels. When the 10-year yields in Japan reach 50 basis points on the high side and 25 basis points on the low side then there will be some big moves in treasury yields and in the price of the yen. This will have systemic effects throughout the world markets.

Last week corporate bonds showed some selling. Typically this is not good for equities as many investors believe equity markets follow bond markets. Maybe the buying will pick up this week but so far this is a bearish look for equities. Economic data and recession fears will be the main drivers of corporate bond prices. If investors believe that the economic situation will be very bad in the future then they will begin to sell their corporate bond holding which will bring down the price.

Bitcoin and ethereum are still at their theoretical bottom. Only whales are holding at these price levels. That is why there is very low liquidity. Relatively speaking there are no buyers and sellers. Many of the alt coins are continuing to sell off but the major cryptocurrencies are resting at this theoretical bottom. Until the very long-term holders or the whales in Bitcoin start buying or selling, the price will be at this level for a while.

Aside from the major selling by Elon Musk, there were not many notable insider transactions last week. It is worth mentioning that there was mostly buying by insiders last week and not much major selling. This shows that a lot of insiders are in the buying mood with stock prices being at a discount since they have been beaten down all year.

Energy is In Focus
Putin is ramping up his war efforts and the US military spending bill implies that the war will drag on well into next year and possibly longer. These developments at the end of last week appear to be having an effect on oil prices as last Friday investors were buying up for dated Futures contracts for crude oil. The price cap on Russian oil is limiting supply which is bullish for oil prices and Russian oil exports are predicted to decline further due to the price cap. Reopening in China is increasing demand which is adding to the bullishness. Last week economic data showed oil supplies are tightening. Things are looking slightly bullish for oil. And a lot of equities in the energy space are showing signs of short-term bullishness and they are in a good position for a dip buy opportunity. Oil has been rallying all year and analyst are not expecting the rally to end in 2023. Economic data points releasing next week should cause short-term price swings in crude oil. Personally I am watching equities within the oil and gas sector for some possible swing trades next week. Here are a few of the names that I am watching personally.

Next Week's Economic Data
The major economic data points to watch more recently have been the ones pertaining to inflation. In the current macro environment bad economic data has been good news for equities because it shows that the Federal Reserve could possibly pivot or slow down the tightening cycle sooner. So we want economic data reflecting slow growth for equities to have any bullishness. But if economic data comes out extremely bad then the recession fears could possibly trigger some major selling.

Housing price index data will be released on Tuesday. Downward pressure on home prices should be dovish for equities in the current macro environment. The 2-year treasury note auction is also on Tuesday. This auction could give us some insight into what smart money believes the FED is thinking, at least for the two year time-frame. If investors are aggressively buying up treasury bonds then this will show that they are confident in the Fed slowing their interest rate hikes into the future. Aggressive bond buying would be dovish for equities currently.

On Wednesday pending home sales data releases. Bad sales numbers in real estate will put downward pressure on housing prices which sould be a positive note for the inflation story. 5-year treasury note auction is on Wednesday as well. Watch for aggressive buying or selling at these treasury auctions.

On Thursday we will see the initial jobless claims data. There are so many job openings in the American economy and the four week average for jobless claims has gradually been coming down. So we should expect jobless claims to be dropping. This is not very accommodative for equities. If employment numbers stay strong then that leaves us with employment wages as the most important factor for the Federal Reserve to determine the length and frequency of rate hikes going forward. 7-year note auction is on Thursday as well.

Chicago PMI will be released on Friday.

So How Do You Think This Week Will Play Out?Personally I am leaning a little more towards the bullish side for this week so far. But the near-term trend is down so I am hesitant to go completely bullish just yet.