Source: PaxForex Premium Analytics Portal, Fundamental Insight
The US Leading Index for December is predicted to drop 0.3% monthly. Forex traders can compare this to the US Leading Index for November, which contracted 0.5% monthly.
Excessive bullishness engulfed traders in January, and the SP500 recorded an all-time high on Friday. The start of fourth-quarter earnings seasons led by US banks provided a catalyst, but the clouds have darkened. Major US banks were expected to outperform, given higher interest rates, but traders should focus on other sectors like transportation. Many companies and consumers ignore what experts call a stealth driver of inflationary pressures. Insurance premiums continue to soar at double-digit rates and filter through from corporate profits to consumer wallets.
Following a better-than-expected US holiday shopping season, where buy-now-pay-later usage surged, debt-laden US consumers wake up to micro-payments due in January, which many cannot afford. Maxed-out credit cards, crushing consumer debt, high-interest rates, and a cooling economy could push US consumers over the edge in 2024. Retailers are less bullish, geopolitical tensions have added to inflationary pressures, and central banks will keep higher rates for longer.
While the US labor market remains hot, it does not help the US Fed on the inflation front. Traders should also monitor inflation reports, as December CPI and core CPI data clocked in above expectations. The risks remain that we have experienced the calm before the storm and that the US Fed will repeat its mistakes from the 1970s. A rolling recession or stagflation are two possibilities markets do not price into the equation, and complacency could result in a heavy 10%+ correction.
The forecast for the SP500 turned cautiously bearish in the short term after this equity index recorded a fresh all-time high on Friday. The Ichimoku Kinko Hyo Cloud flatlined with the Senkou Span A and the Senkou Span B trending sideways, suggesting the absence of bullishness to drive price action higher. Volatility could rise with the Tenkan-sen and the Kijun-sen ascending, but the narrowing of both indicators increased the risk of a bearish crossover. Traders should also monitor the CCI in extreme overbought territory, where a negative divergence has formed. A breakdown below 100 could trigger a profit-taking sell-off, and this technical indicator has plenty of downside potential. Can bears overpower bulls and take control of the SP500 to drive price action into its horizontal support area? Subscribe to the PaxForex Daily Fundamental Analysis and earn over 5,000 pips per month.
Should price action for the SP500 Index remain inside the or breakdown below the 4,810 to 4,900 zone, PaxForex recommends the following trade set-up:
- Timeframe: D1
- Recommendation: Short Position
- Entry Level: Short Position @ 4.850
- Take Profit Zone: 4.605 – 4.665
- Stop Loss Level: 4.925
Should price action for the SP500 Index breakout above 4,900, PaxForex recommends the following trade set-up:
- Timeframe: D1
- Recommendation: Long Position
- Entry Level: Long Position @ 4.925
- Take Profit Zone: 4.975 – 5.000
- Stop Loss Level: 4.900
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