The strong selling into the close of Wednesday opened the door for a relief rally due to the short-term oversold conditions.  However,  the rally’s success will depend on earnings reports that, as of now, seem uncertain.  In addition, as we move toward the Fed tightening monetary policy, the hints of a slowing economic condition could make the path forward challenging.  A busy morning of economic reports and the market moving report from NFLX after the bell will keep volatility high.  So expect big price action moves, intraday whips, and overnight gaps to challenge trader skills.

Overnight Asian markets rallied sharply after the China Central Bank cut key lending rates due to their slowing economy.   European market trade in a choppy morning session with mixed results as of this report.  With a big day of earnings and economic data, U.S Futures suggest a bullish open and the possible beginning of a relief rally but watch those overhead resistance levels for entrenched bears.

Economic Calendar

Earnings Calendar

We have nearly 60 companies listed on the Thursday earnings calendar.  Notable reports include NFLX, AAL, BANR, BKR, CSX, FITB, ISRG, KEY, MTB, NTRS, OZK, PPBI, PPG, RF, SASR, SIVB, TRV, UNP, & WBS.

News & Technicals’

China’s central bank cut the one-year loan prime rate by 3.8% to 3.7% by ten basis points.  Five basis points reduced the five-year loan prime rate from 4.65% to 4.6% — the first cut since April 2020, at the height of the coronavirus pandemic in the country.  The industrial economy still hasn’t seen a substantial recovery due to the global pandemic, weakening trade growth, lack of consumer demand, and other factors, spokesperson Luo Junjie told reporters.  “On top of that, recently, the coronavirus has spread to many places,” Luo said in Mandarin.  “In the first quarter of the year, the industrial economy still faces rather considerable downward pressure.  In addition, U.K. Prime Minister Boris Johnson is facing the political battle of his career.  Johnson could face a vote of no confidence if enough of his lawmakers turn against him.  In addition, Johnson has come under immense pressure amid multiple reports of parties and gatherings allegedly held by government staff and some attended by Johnson during Covid lockdowns in the U.K.  Treasury yields ticked higher in early Thursday trading, with the 10-year rising to 1.83379% and the 30-year slightly higher to 2.1533%.

Though the indexes are in a bearish technical condition with confirmed downtrends, the Wednesday afternoon rout opened the door for a relief rally due to the short-term oversold conditions.  China’s central banks lowered rates adds a little fuel to the relief rally, but traders should keep a close eye on overhead resistance levels for bear traps.  In addition, the mix of earnings results places the market in a very different condition than we have experienced in past seasons.   That said, we will have to watch earnings results closely as market-moving company reports roll out over the next few weeks.  The current selloff has relieved some of the very high valuations, but P/E ratios are still historically highs.  If earnings gains show a slowing of economic conditions, the path forward could be challenging.  Expect price volatility to remain high as we wait for the market moving report from NFLX this afternoon.

Trade Wisely,

Doug