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2 Key Charts Driving the Market in February

by | Feb 7, 2022

It’s been a rough start to the year for markets to say the least. In January, we saw the S&P 500 fall more than 7% from its record high set earlier that month. The Nasdaq 100 fell into correction territory — about 11.4% lower from the most recent all-time high.

But then, like most things on Wall Street, things changed at the drop of a hat.

So now what? How should traders approach the stock market with a proper forecast for the week of Feb. 7?

How do we go from having the worst January in recent memory… to the strongest week of trading thus far in 2022 this past week? 

Well, I expect to see a chop shop! And by that, I mean I expect to see a lot of big head-fake moves on the daily bar basis — but no extended moves either up or down. 

We’ve digested the bulk of key earnings reports over the past few weeks, so now we’re in the aftermath. And it was a big… mixed bag… with Apple Inc. (Nasdaq: AAPL) and Microsoft Corp. (Nasdaq: MSFT) providing huge strength, and then Meta Platforms Inc. (Nasdaq: FB) collapsing about 28% the past week. 

I expect stocks reporting strong earnings to follow through to the upside, and the weak to also follow through to the downside. 

This will keep the markets mixed and undecided.

However, in the meantime, I’m watching these key economic events and charts to stay ahead with a proper forecast for the stock market the week of Feb. 7.

Stock Market Forecast for the Week of Feb. 7: Key Events and Charts to Watch

Consumer Price Index data is coming on Feb. 10, and this is the biggest economic number all month. Fresh inflation data could cause a boost in the Federal Reserve’s plan to hike interest rates and fuel another surge of volatility.  

The risks on a blowout number could also create a flash crash situation in the market… However, a dovish number would mean rocket fuel for stocks. I expect the market to be firm and tilted bullish going into the number. 

We’re expecting 0.4% month-over-month gains in the CPI, but a terrible read for the stocks would be 0.6% or higher. It would mean this inflation game is running away from the Fed, and it’s not enough to just talk about action — it’s time to take action.

But will they…?

Besides this, there are only two charts driving all the risk-on and risk-off action right now…

In fact, I’m looking at the 10-Year Treasury Yield. 

Bond yields are back to levels we haven’t seen since before the pandemic. A shock move to 2.5% could be in order here, which would crush the Nasdaq and growth in general. 

Banks, however, would love that.

I’ve also got my eyes on crude oil…

Crude is approaching $100 a barrel — a key psychological level — but the end target could be much higher. 

Shorts will get squeezed at $100 and momentum algorithms will go bezerk. The first level I see it cooling off is $120, with $150 being my year-end forecast…

Let me know if you have any questions about my forecast for the stock market for the week of Feb. 7. 

And as always, send any trading questions to jeff@joyofthetrade.com and stay ahead of the markets, especially these choppy ones, by subscribing to our YouTube channel

WRITTEN BY<br>Jeff Zananiri

Jeff Zananiri

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