A1 Trading Company

May 2, 2024

Trading Into NFP

Frank Cabibi

Tomorrow is NFP which will cap off the week of heavy news for the US and dollar-related assets. So far, we have seen a lack of volatility in the markets despite a slew of earnings reports and FOMC news from the past three days. Investors are trying to interpret once again what Powell is saying on behalf of the Fed and its plans going forward. Here is what we can take away from that and the looming jobs report tomorrow.

EdgeFinder Analysis

NZDUSD is flashing bearish signals on the EdgeFinder. The score is now -12 and has remained lower than -10 for the most part for the last month. This is likely due to the monetary shift in Fed sentiment who had originally forecasted three rate cuts by the end of this year.

However, we are not seeing any of these plans come to fruition as we approach the middle of the year. Now the question remains when, if any, the cuts will come. As forecasts keep getting pushed back deeper into the year, it raises fears that they won't come until next year.

The NAS100 seems relatively unbothered by the fact there might not be any rate cuts this year. Price is only 5% off the highs it made earlier in the year as the lack of volatility this week is keeping stocks within a range of support and resistance.

What we can likely expect is choppiness from positive growth in earnings yet stubborn inflation. Tomorrow's NFP is going to be another big news day, and we'll see if that is enough to give the markets a decisive move. It seems that a lower jobs number will be bearish for the indices given the fact we would have a slower jobs market and higher than expected inflation.

Right now the US indices are neutral for the most part. The market doesn't know where to go with the data we have now. Mixed sentiment is usually a bad place for traders unless they are taking quick intraday moves like what we have seen the past couple weeks.

The Russell is very interest rate sensitive as it consists of smaller companies that need yields lower for a smoother business operation. If you take a look at the US indices, you might have noticed that despite the 2-3% moves that happened during the day ended up closing back to where they opened.

Retail Spotlight

Retail is now decisively short the dollar as GU and AU sit in the top sell positions while metals, oil, crypto, and indices mostly remain in their top buys.

Smart Money Spotlight

This setup with high retail optimism and lower COT bullishness suggests the potential bearishness we may start to see in currencies trading against the dollar. This chart shows that smart money is increasingly short NZDUSD while retail is heavily long after yesterday's FOMC conference.

Fundamental Spotlight

The yield curve has been a very accurate predictor of a stock market correction. You can see when the chart crosses below the inversion level, a correction has happened in the years following. 2000, 2008, 2020 have all been major market crashes. But right now, we are sitting at over 600 days on being inverted with no signs of a market crash.

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