Recession is around the corner, according to the inverted US yield curve

US stocks fell again yesterday

During the last market session, on Wednesday, the 2 major indices registered losses.

The S&P 500 closed at -0.19% and the Nasdaq was down 0.51%.

Yesterday was the fifth day in a row of the stock market decline.

This negative trend is driven by investors’ concern about the Federal Reserve monetary policy that could be more aggressive and could last for a longer period than expected.

That is because the recent economic data are still showing growth.

Strong economic data have also caused the inversion of the US yield curve, which is currently at a level that has not been reached since 1981.

Clearly, investors are expecting a recession as soon as next year.

Data to be released today

Financial markets can be volatile today following the release of the report about the US  initial jobless claims for the week ending on December 3rd at 1:30 PM GMT.

S&P 500 Technical Analysis – Daily Chart

 

The S&P 500 price hasn’t moved much yesterday.

The index price closed above the horizontal support line at around 3900 and above the 100-day MA (orange moving average).

This is a positive sign.

If the price is able to consolidate and hold this support, we could see the price increase and retest again the bear market trendline, otherwise, prices could drop to the next support level at the 50-day MA (red moving average) at around 3843.

The only option to change the current scenario to a new bullish trend would be for the price to move back above the 4100 resistance level.

The RSI stands at 49, indicating a neutral/bearish trend.

US Dollar Index Technical Analysis – Daily Chart

 

The U.S. Dollar Index has been rejected yesterday at its key support level, the 200-day MA (green moving average).

This is a bearish signal for the dollar, but it’s a bullish signal for stocks because the US Dollar and the S&P 500 move in opposite directions.

If the Dollar Index will remain below the 200-day MA, it could support a rally in the S&P 500 Index for some time.

However, both the S&P 500 and the Dollar Index are currently trading below their key level, which is unusual, so the next direction of the dollar will be a leading indicator for US stocks.

The next few days’ price action will dictate the market direction.

US Dollar Index Technical Analysis – Weekly Chart



 

On the weekly timeframe, we can notice that the 103.46 level is very important for the US dollar index since it has worked as a strong resistance in 2017 ad 2020, but it could work as support right now.

This level is also in line with the 50-weekly MA (red moving average).

Investors will need to monitor the retest or the breakout of this important level.

If the Dollar Index were to fall below this level, we could see a rally heading into the year-end (Santa Rally).

If the index will be able to hold this support and jump higher, we will see further downside in stock prices.

Sentiment Indicator – Fear & Greed Index

The market sentiment is at 58  in the “Greed” mode which is lower than the level registered one week ago.

The fear of a recession will likely push both the investor’s sentiment and stock prices down.

FedWatch Tool – FED rates probabilities

74.7% of investors are expecting the FED to increase the interest rates by 0.50% in the next meeting.

The remaining 25.3% are expecting a 0.75% rate increase.

The data show us that the number of investors expecting an increase of 0.75% is getting higher than in the previous days.

The next FED meeting is approaching next week, on 14 December 2022.

Portfolio Update

My portfolio allocation remains unchanged at the moment.

Overall, the majority of my positions are bullish (LONG).

I have a few short positions opened recently that I am monitoring and waiting for the right time to close or I could add more shorts if the price reverts to the downside.

Right now I am neutral on the stock market, as the price can go in any direction in the short term.

I am keeping my risk score low and I have some cash available on balance to use for new trades.

If you are already copying my portfolio, please keep the copy open.

If you are thinking of copying me, now could be the right time, if you can invest for the long term (years).

Remember to copy the open trades to optimize the copy.

Remember to set the stop loss on the copy at the minimum level, so you don’t get stopped if there is a correction.

Thank you, everyone. Have a nice day!

Steps to follow to copy my portfolio automatically:

1. Create an eToro account here: https://federicamontella.com/go/etoro/

2. Verify your account and make a deposit of at least 200 USD (you can deposit in any currency, like GBP and EUR)

3. Go to my profile page: https://federicamontella.com/go/etoro-passionforprofit/

4. Start the copy (copy open trades and set the lowest stop loss possible, to allow some movement)

5. Enjoy, it’s all automatic. You will make passive income 24/7

Let me know if you have any questions.

 

Federica Montella

eToro Popular Investor

 

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Author: Federica Montella
eToro Popular Investor, food lover and blogger. Stock trader and Popular Investor at eToro. I am on a mission to find the best restaurants and food to eat.