VoSI Focus List Review for the Week Ended February 10, 2023

Published:

11 Feb 2023 09:20 ET

Major market indexes spent the week correcting after steady uptrends in January. The pullback is perhaps necessary ahead of Tuesday's Consumer Price Index report and was well-contained on the chart of the S&P 500 Index. The index held support at its 20-day exponential moving average.

But much of the bounce was due to short covering as it was the largest short squeeze since 2015. Prior major short squeezes such as in 2015 and 2021 always resulted in lower major averages over the ensuing weeks.

Further, a number of Fed members have said they are not seeing signs of a quick decline in inflation. The CME fed fund futures now predicts a terminal rate of 500-525 at minimum, or at least two more 25 bps rate hikes. Despite this, one Fed member said the markets seem to think inflation will cool faster than the Fed thinks. Food prices are likely to remain stubbornly high due to supply chain issues as well as soaring prices in wheat and fertilizer.

Precious metals continue to correct. While silver dangles in mid-air as it looks set to test its 200-day moving average, the SPDR Gold Shares (GLD) held support at the 50-day moving average on Friday as volume declined to -49% below average. This is a typical voodoo type of pullback to the 50-day line that is buyable using the 50-dma as a tight selling guide.

Bitcoin ($BTCUSD) broke near-term support at its 20-dema on Thursday to trigger a short-sale entry at that point. We continue to expect more corrective action in $BTCUSD and would use any rally up into the 20-dema as a potential short-sale entry using the inverse ProShares Short Bitcoin Strategy ETF (BITI).

This Tuesday the latest Consumer Price Index report will be released. Expectations from the Cleveland Fed are for a 0.45% increase in month-over-month core CPI compared to 0.3% last month. There is little doubt that any surprises from the CPI will have a meaningful market effect. However, if it merely comes in as expected it would still imply reacceleration in month-over-month CPI. Thus any variety of market outcomes could occur on Tuesday, making it difficult to pound the table bullishly or bearishly until we see what the CPI reports brings.

The Market Direction Model (MDM) remains on a SELL signal.

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