Investors Are Changing Their 2024 Rate Cuts Forecasts 📊

🐺 Hi pack-mates,

This is Howling Markets, the train track guiding you in a straightforward way through the financial markets!

Today we will be covering:

• Education: What Are Moving Averages? 📈

• The Cyberattack Against Ledger Costed the Company More Than $600,000! 💻

• Investors Are Changing Their 2024 Rate Cuts Forecasts 📊

• Equity and Debt Markets Daily Update ⚖️

• And more!

Market Watch 👀

What Are Moving Averages?

Moving averages (MAs) are one of the simplest, yet most useful, technical indicators that a trader can look at. On the chart, MAs appear as simple colored lines, but what do these lines represent?

As the name suggests, moving averages represent the mean price of the asset on a “moving” timeframe starting a certain number of trading days ago and ending today. As a matter of fact, moving averages are defined by a value that follows the name, for example MA 20 or MA 50, where the number represents the number of trading days which are taken into consideration to compute the average price.

For example, if today is Monday and we want to calculate the value of a super short 3 days moving average (MA 3), we will have to calculate the average price among today, Friday and Thursday. Because we only consider trading days, we skip Saturday and Sunday in our calculations.

Also, if the markets are still open when calculating the MA, we will take the last price update of the current date, so as long as the market is open the value of MAs will change.

It is important to know that there are many different types of moving averages, but the two most widely used are:

• Simple Moving Average (SMA): these moving averages are the ones we have just briefly described. They are calculated by taking the average price over the last number of trading days that you want to analyze.

• Exponential Moving Average (EMA): these moving averages are slightly more complex to calculate as they use a weighted average formula which gives exponentially more relevance to the latest trading days. In non-mathematical jargon it means that the latest days have a greater impact on the average than older trading sessions.

The Cyberattack Against Ledger Costed the Company More Than $600,000!

Around the 15^th of December, Ledger was targeted by a cyberattack which resulted in the token draining of thousands of digital wallets.

Such attack was performed by breaching Ledger’s security wall and introducing malware that displayed a pop-up and prompted the users to insert their wallet credentials to speed up the log in process.

A couple of days after the attack the damage was estimated to be slightly more than $150,000, but almost a month later, the Ledger has just announced that its users lost more than $600,000!

However, the good news is that Ledger has decided to fully reimburse all its users and to keep improving their product to ensure that such issues will not happen again.

After this announcement, do you feel safer to use products such as Ledger, or would you rather use a traditional wallet?

Today’s Howling Question

And now, it is time for our howling question!

We have talked about moving averages, now let’s test if you have gotten familiar with the concept. Assuming that a stock is in a long term uptrend and that we have plotted the 20, 50 and 150 Simple Moving Averages (SMAs) on the chart, how do you think these three indicators will be ordered?

a) 20 > 50 > 150, meaning that in the chart the 20 will be the highest SMA, then there will be the 50 and the lowest will be the 150.

b) 20 > 150 > 50

c) 150 > 50 > 20

d) 150 > 20 > 50

e) 50 > 150 > 20

Bonus Question: How would your answer change if instead of simple moving averages we plot exponential moving averages?

Try to answer the question by yourself, and then check the correct answer after the last interesting news!

Investors Are Changing Their 2024 Rate Cuts Forecasts

Three weeks ago, the Federal Reserve held the last FOMC meeting, and it announced that they believed to be around at the top of the interest rate hiking cycle and that they had already started discussing rate cuts.

Such an unexpected announcement sent the markets to the moon, the 10 year US government bond yield dropped below 4% and the swap markets started pricing in 7 rate cuts in 2024 for a total decrease in policy rate by 1.75%.

However, on Wednesday, the Minutes were released, where it transpired that the Feds aren’t as dovish as the markets expected and left open the possibility of keeping policy rates high for longer.

Right after the Minutes were published, it seemed that only the stock market was taking a hit, but the rate cut expectations for 2024 were standing. But, a couple of days later, the markets revised their expectations to only price in 5 or 6 rate cuts in 2024.

Additionally, prior to the Minutes, investors were almost certain to see the first cut in March, but now they have reduced their expectations to only a 75% chance. When do you think the first rate cut will be implemented?

Equity and Debt Markets Update ⚖️

And now, our daily markets update!

Despite an initial bullish start to the day, the S&P 500 only closed marginally higher on Friday by +0.18%. In addition, by looking at the candle shape we can notice an exceptionally long top wick, extremely similar to the previous day’s candle.

This shape shows how the market tried to push the price higher, but it only encountered liquidity and not enough demand, moving the price back down.

In this chart I have also decided to plot the SMAs, and it is possible to see how the price tested the SMA 20 before coming back down.

As a matter of fact, aside from being a trend indicator, moving averages often perform the role of support and resistance, so many traders keep a keen high on them to spot price reversals.

Right in line with the higher interest rate expectations, the US 10 year government bond yield continued to rally higher, breaching the 4% wall by climbing +1.22% on Friday. How much higher do you think the interest rates will go?

Answer

The correct answer is a) 20 > 50 > 150.

In a long term uptrend, the price keeps making higher highs and higher lows, so it means that the most recent trading sessions will have a higher average price as opposed to a longer time frame.

However, if the retracements during the uptrend are quite significant, it might be the case that the 20 touches or crosses the 50 for a brief period before resuming the original order.

If instead of using SMAs we use exponential ones, the result does not change, however it becomes more likely that the 20 crosses under the 50 as the average is more sensitive to the latest price changes.

In the chart below you can see how the SMA 20 (blue), the SMA 50 (red) and the SMA 150 (green) are ordered.

Howl-Worthy Memes 😂

🐺 See you next time!

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