US Equity indices started off the week on a positive note with the S&P 500 Index SPX adding 39 basis points while Gold GC/ led broader Commodity indices into negative territory. This is a continuation of divergence between US Equity and Commodity indices, with Gold GC/ and Crude Oil CL/ being notable movers to the downside, shedding roughly 3% and 6% since the beginning of December. This divergence has led Domestic Equities to overtake Commodities within DALI for 2nd in the asset class rankings. Technically, the two asset classes are tied at 242 tally signals, but Domestic Equity’s recent rally has led to positive near-term RS for the asset class compared to Commodities and it to be favored in the tiebreaker.

Last week, International Equities moved up to the number 1 spot within DALI and it currently leads Domestic Equities and Commodities by 3 tally signals. This brings what has been a tight margin between the 1st and 3rd ranked asset classes since the beginning of November, to an even tighter margin. This technically is not the tightest margin between 1st and 3rd in DALI, but it counts as only the fifth day in DALI’s asset class history the top three asset classes have been separated by 3 or fewer tally signals. The narrowest margin between the top three asset classes occurred on August 16th, 2016, when Commodities sat in 1st at 227 tally signals, Domestic Equities was in 2nd at 226, and Fixed Income was in 3rd at 225. Domestic Equities emerged as the top asset class from that period and maintained the top spot for roughly 3.5 years.

Among the RS charts to flip recently to favor US Equities compares the NDW Proprietary Domestic Equity Index against the iShares Silver Trust SLV on a 3.25% scale. The chart moved back to a buy signal following Monday’s action after having been on an RS sell signal since December last year. As noted above, Gold, along with Silver, have carried the precious metals space lower and were the primary subgroup of Commodities to lose signals as of late. Precious Metals have not been the only space losing ground on a relative basis as Crude Oil CL/ has shed almost 20% over the past 90-day roll, and the stalwart of the broader asset class, agriculture, has begun to shed some of its superior strength. An RS chart we have noted before compares the SPDR S&P 500 Trust SPY against the Invesco DB Agriculture Fund DBA, and following Monday’s action, it is the closest the RS chart has been to an RS buy signal since August 2022. Currently, the RS chart is just over 1% away from returning to a buy signal and potentially favoring SPY for the first time in 22 months.

Last week we discussed the market’s expectations and the Fed regarding monetary policy. In short, the market was expecting rate cuts to begin early next year and strong odds the Fed Funds rate would be cut by at least 100 basis points by the end of next year. However, the Fed has reiterated the need for interest rates to remain high until inflation drops back to its 2% target. The Fed has embraced a “data dependent” approach when it comes to making policy decisions and with a CPI release Tuesday morning, it’s a good time to see where the data stands. Last week it was mentioned that any data showing signs that the Fed may need to hold rates higher for longer than the market expected would likely be bad for assets, especially bonds which were coming off one of their best monthly performances in decades and already in extended territory.

Digging into this month’s CPI data, the overall direction of inflation is still lower but was not as encouraging as many were expecting. The YoY percent change for All Items ticked lower thanks mostly to declining energy prices with the MoM change coming in at 0.1%. However, outside of energy prices, most major categories moved higher with the less volatile All Items Less Food and Energy posting a YoY change of 4% and a MoM change of 0.3%. In the grand scheme of things, most of the data still shows that inflation is on a path to head back down to the 2% target. Aside from energy prices taking a major downtick, food prices have moderated with a MoM reading in October of 0% and a November reading of 0.1%. Shelter costs remain a thorn in the Fed’s side, however, the shelter reading has notable lagging components that go into its calculation, so that is something to keep in mind. To reiterate, this wasn’t a bad print for the general trend of inflation heading lower, however, it wasn’t as strong of a print as we’ve seen either and market expectations have shifted on the news.

With respect to market expectations, last week it was mentioned that market participants were pricing in a 60% chance the Fed made an interest rate cut by March, those odds are now down to 40% (CME). Not an extreme change, but not something to scoff at either. Getting back to a point made earlier, energy prices were a major contributing factor to headline inflation only showing a slight increase of 0.1% rather than closer to the ex-food and energy number of 0.3%. Much of the decrease in energy prices can be attributed to a clearer picture of the conflict in Israel as well as weak economic numbers coming from places like China and Europe stoking demand concerns. However, crude oil is now trading below $70 again for the first time since July. The mid-60s have been a support area for crude oil this year, so further downside, at least to the extent we’ve seen since October, may be harder to come by. While energy has been a big boost to lower inflation numbers, those gains shouldn’t be counted on to continue given where Crude Oil (CL/) is trading. Also mentioned last week, the market shrugged off initial news from OPEC+ regarding more supply cuts, however, OPEC+ has shown a willingness to take measures to defend prices, especially at these levels. For example, Saudi Arabia announced a voluntary cut in June this year when crude oil was trading at around $70 per barrel.  

Not shown in the CPI data, the Fed keeps track of financial conditions. One of the main ideas behind raising interest rates is that it tightens financial conditions thus leading to less economic activity and lower inflation. However, according to the Chicago Fed’s National Financial Conditions Index, financial conditions have loosened consistently since March and are now the loosest they’ve been since February 2022. This can be seen in the chart below; negative readings signify financial conditions are looser than average while the opposite is true for positive readings. The most recent dive lower is likely due to interest rates falling since October as market participants began pricing in interest rate cuts early next year. Paradoxically, the market expecting lower interest rates has created a reason for interest rates to stay higher for longer. Due to loosening financial conditions as the market expects lower interest rates are soon on the horizon, the Fed is now forced to try to tighten financial conditions through policy or rhetoric.

At this point in time, it seems still unlikely that the Fed has another rate hike up its sleeve but it can say it won’t cut interest rates noting that financial conditions have loosened. Wednesday’s FOMC meeting will potentially shed some light on the Fed’s outlook given the looser financial conditions and the market’s expectations for rate cuts. Inflation data continues to show a general decline albeit at a slower pace than many expected from the data this morning. Energy prices were the biggest contributor to a low headline number, but continued downside may be difficult to come by as crude oil approached long-term support. Overall, the market hasn’t changed its view too much on the expectation of multiple rate cuts next year, but it has pushed them out further with Tuesday’s CPI data.

We are very excited to announce the launch of the NDW Help Center, designed to make it much easier to find answers to your Nasdaq Dorsey Wright-related questions. The Help Center will feature a searchable knowledge base of helpful articles and frequently asked questions related to the NDW platform. From the Help Center, you will also be able to submit support requests if you have issues or questions that are not currently covered in our knowledge base articles. Submitting support requests via the Help Center will help us connect you with the correct NDW subject matter expert and allow us to track and correct common issues impacting our users more easily. 

There are a few different ways to access the Help Center from the platform. The first is via the Resource Center (the blue XO icon in the bottom right corner).

When you open the Help Center in the Resource Center, it will suggest Help Center articles related to the page you are currently on. Some suggested articles can be seen below when accessing the Help Center from the Portfolios page. You can also use the search bar at the top if your question is not answered by the suggested articles.

You can also hit the “Contact Us” button to submit a support request directly from the Resource Center.

Links to the Help Center can also be found under the Resources tab and the help icon in the top right corner of the platform.

One final thing we wanted to make sure to highlight with the launch of the Help Center is the difference between submitting requests via the Help Center and via the Feedback Portal. The Help Center is for your everyday support requests and things you would want immediate assistance with- tech issues, billing questions, questions for the analysts, etc.

The Feedback Portal, on the other hand, should be used for suggesting product features or enhancements, such as “I’d love to see technical attribute changes overlayed on a stock’s chart like the signal trail.”

We will be continuing to add new articles to the Help Center based on user questions and submitted support tickets, so please let us know what tools or topics would be helpful to cover in more detail. 

Daily Option Ideas for December 12, 2023