After gapping up then testing recent lows, the bulls stepped up to defend, resulting in a short squeeze rally to end the week. Unfortunately, though it provided some sweet relief in the selling, it did nothing to repair the technical damage in the DIA, SPY, and QQQ index charts that remain in a downtrend and under significant overhead price resistance. In addition, Evergrande missed another 120 million bond payment on Sunday, once again raising concerns about a debt bubble contagion spreading.  So get ready for another week of uncertainty as we wait on Private Payroll data and the Friday Employment Situation report.

Overnight Asian market mainly traded lower, with the HSI falling 2.19% after halting Evergrand trading.  China’s markets will be closed until Friday due to a holiday.  European markets traded mixed this morning with very modest gains and losses.  U.S. futures point to a bearish open but off overnight lows to begin a busy week of jobs data. 

Economic Calendar

Earnings Calendar

We have only three confirmed earnings reports on the calendar, but only CMTL rises to be somewhat notable for today.

News & Technicals’

Facebook back under scrutiny after a whistleblower leaked documents detailing private research to The Wall Street Journal and the U.S. Congress.  The documents revealed that Facebook executives had been aware of the negative impacts of its platforms on some young users. The whistleblower unmasked herself as former product manager for civic misinformation Frances Haugen during Sunday’s “60 Minutes” interview.  Shares of Evergrande and Evergrande Property Services were halted Monday morning. The embattled property giant said it requested the trading halt ahead of an announcement about a “major transaction.” Chinese developer Hopson also suspended trading of its shares, citing an impending announcement of a “major transaction” to acquire a Hong Kong-listed company’s shares without specifying.  Buckling under the weight of more than $300 billion in debt, Evergrande has been trying to offload stakes in other assets.  The Chinese markets are closed through Thursday for a holiday and will reopen on Friday.  Treasury yields rose slightly in early morning trading, with the 10-year trading up to 1.469% and the 30-year climbing to 2.046%.

Friday produced a nice short squeeze rally after testing recent lows but unfortunately did not resolve the bearish technical picture in the index charts.  The DIA, SPY, and QQQ continue to face overhead resistance, downtrend resistance as well as the technical resistance of declining moving averages on the daily charts.  However, with the shortages and inflationary pressures growing on energy sector stocks, the IWM managed to recover its 200 and 50-day averages though still below downtrend resistance.  The Chinese developer Evergrande missed another 120 million bond payment on Sunday. As a result, they halted trading in Evergrande and another developer raising more uncertainty as to what comes next.  Hong Kong fell 2.19%, and Japan fell 1.13%, with the Shanghai composite closed through Thursday for a holiday.  The big question for European and U.S. markets is whether this debt bubble contagion will spread.  Plan for another wild week of price action with Private Payroll numbers mid-week and the Employment Situation report on Friday.

Trade Wisely,

Doug