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- Coiled Spring Capital Macro Report Aug 21, 2022
Last week in the market was the first down week in 4. It's been quite a nice ride for our long exposure that we added in Jun. As we highlighted in our last weekend report, we have exited most of our trading longs w/ some very meaningful gains. (AMZN +25%, CHWY +45%, IWM +13%, XBI +24%, DVN +30% (still long), OXY +24% (still long), MSFT +15%...to name a few).
Admittedly, we did not think the SPX would break through this resistance band so easily, as this is the neckline from the head and shoulders top pattern. Currently we are back in the zone after breaking above. This is now a battleground. Above is bullish, below is bearish. Last week's shooting star candle can be a reversal pattern, but it must confirm.
In our last weekend report, we highlighted the potential for the market to stall as it approached a zone of confluence w/ the DTL from the Jan peak, the 200 day, and the 61.8% fib retracement level. We also highlighted in our mid-week report and on our public twitter TL, a few patterns to consider if attempting to position short for a counter trend move.
We also highlighted that the Dollar was breaking up out of this flag pattern and would be an issue for risk assets.
We highlighted that Bitcoin breaking down can be a harbinger for a risk off environment.
In that mid week report, we also discussed confluence in DeMark counts if we elect the set up confirm feature. Here is that excerpt for the Russell:
The Russell was also posting a DeMark aggressive count 13 combo sell.
And the IWM was into its POC per this Trendspider chart with the distance from the 20 day quite stretched. Here is that excerpt:
Readers of our work, know that we like confluence. The Russell is now down almost -4% since these posts.
The SPX has broken this wedge and is back below a few pivots and testing the 50% retracement level.
This week we will hear from Powell at Jackson Hole. Will he deliver a dovish speech, or will he tighten the reins and inject more volatility into the market? Inflation is still the highest in 4 decades, and the Fed seems hell bent on getting back to 2% trend. Thats a long way from the last 8.5% CPI print.
There is a growing narrative that maybe the Fed has overtightened. If that's true, widespread impact on the economy has not been felt - see the last employment report. Rate hikes typically take 6-9 months to work its way through the economy, although more interest rate sensitive sectors, like housing, are already seeing that impact.
New home sales are nose diving.
So are pending home sales.
New monthly figures will be out this week.
We will also get consumer sentiment figures, which are already at 40 year lows.
Interestingly, if you overlay DeMark signals, this will most likely print a 9 buy as well. 9's do have a decent track record of calling bottoms.
This week will be critical, especially as we enter a seasonally difficult period for the market.
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