Yesterday’s booming recovery rally repaired a lot of the technical damage in the index charts, but traders will still have to watch overhead resistance levels closely.  Pricing pressures, product shortages, debt ceiling politics are just a few of the uncertainties on the path forward. So expect the price volatility to remain challenging in the days ahead.  With the Dow nearly 1200 points off the Monday low, I would not rule out a possible risk-off day heading into the weekend despite the bullish momentum. 

Asian markets traded mostly lower as Evergrande continues to concern investors and China crackdown prohibiting all cryptocurrency exchanges.  This morning, European markets trade in the red across the board as they monitor the German election and Evergrande impacts.  Ahead of housing data and more Fed speak, the U.S futures currently point to a bit of profit-taking after yesterday’s energetic rally.

Economic Calendar

Earnings Calendar

On the Friday earnings calendar, we only have six verified reports.  Notable reports include CCL & JOBS.

News & Technicals’

The People’s Bank of China said services offering trading, order matching, token issuance, and derivatives for virtual currencies are strictly prohibited, vowing a harsh crackdown.  An American short-seller banned from trading in Hong Kong for a damning report he wrote on Evergrande, Andrew Left says the Chinese property developer’s debt crisis was “a long time coming.”  Evergrande was due to pay $83 million of interest on Thursday for a dollar-denominated bond set to mature in March 2022. Foreign investors typically hold dollar bonds. So even if no payment is made on Thursday, the company will not technically default unless it fails to make that payment within 30 days.  The White House on Thursday began to advise federal agencies to prepare for the first government shutdown of the Covid-19 era.  The administration’s Office of Management and Budget is alerting federal agencies that they are expected to execute shutdown plans next week, barring a new appropriations bill. Meanwhile, House Speaker Nancy Pelosi and Senate Majority Leader Chuck Schumer announced “an agreement on a framework” with the White House over taxes to pay for the $3.5 trillion reconciliation package.  U.S. Treasury yields rose sharply this morning, with the 10-year rising 30 basis points to 1.4406% and the 30-year trading 32 basis points higher at 1.9563%.

Yesterday’s sharp recovery rally repaired a lot of technical damage, but we’re not out of the danger zone just yet.  The indexes still have significant overhead resistance, a possible government shutdown, high inflation squeezing consumers, growing product shortages, and those pesky rising Jobless Claims.  Toss in tax hikes on the way and a possible Fed taper, and the path forward is understandingly uncertain.  With the Dow closing nearly 1200 points above the Monday low, the current momentum favors the bulls.  However, the T2122 indicator has quickly recovered to a short-term overbought condition. As we head into the weekend, we can’t rule out the possibility of profit-taking and risk reduction due to the uncertainties.  Volatility remains high with housing numbers later this morning and a slew of Fed speakers, including Jerome Powell. So plan your risk carefully and have a wonderful weekend!

Trade Wisely,

Doug