Friday proved to be just another day in the wide, choppy consolidation range, with the bears taking their turn at the helm.  I suspect we will have a challenging summer of price action, as many big investment banks have warned.  With key inflation data coming on Friday, bond yields are rising this morning, and I think the Fed members have been clear that the Fed put is no longer there to prop up the market.  So, as we push higher this morning, remember to respect overhead resistance where the bears may be building defenses.

Asian markets traded mostly higher as China relaxed lockdown restrictions, as Hong Kong surged by 2.71%.  European markets trade green across the board this morning but keeping a close eye on inflation data later this week.  With a light day on the Earnings and Economic calendars, the bulls are back on the job this morning, pointing to a gap open as the choppy range-bound trading continues.

Economic Calendar

Earnings Calendar

We have a light day with just 11 confirmed earnings reports to kick off the new week of trading.  Notable reports include COUP, HQY, NGL & SAIC.

New & Technicals’

According to Morgan Stanley co-President Ted Pick, global markets are beginning a fundamental shift after a 15-year period defined by low interest rates and cheap corporate debt.  The transition from the economic conditions that followed the 2008 financial crisis and whatever comes next will take “12, 18, 24 months” to unfold, he said last week at a New York financial conference.  However, pick said that out of the ashes of this transition period, a new business cycle will emerge.  The U.K.’s Prime Minister Boris Johnson will face a vote of confidence later on Monday amid increasing dissatisfaction with his leadership.  To trigger a vote of confidence, 15% of Conservative lawmakers (or 54 of the current 360 Tory MPs) are required to write letters to Graham Brady, chairman of the 1922 Committee, which oversees the party’s leadership challenges.  On Monday, Brady announced that the threshold had been exceeded.  According to official data, after a surge of omicron cases across the country since March, the nationwide daily Covid case count has fallen to below 50.  “Our high-frequency trackers suggest that barring another severe Covid resurgence and related lockdowns, mobility, construction and ports operation could recover to pre-lockdown levels in around one month,” Goldman Sachs China Economist Lisheng Wang and a team said in a report Saturday.  In a significant step toward normality, the capital city of Beijing allowed most restaurants to resume in-store dining Monday after a hiatus of about a month.  Amid the fanfare of U.S. President Joe Biden’s new Indo-Pacific strategy, China flew under the radar, focusing instead on growing trade under RCEP.  Consistent with its support of multilateralism and globalization, China is likely to continue promoting the adoption of RCEP, which grants member states market access that IPEF lacks.  Beijing has laid out a blueprint for how Chinese businesses expand trade and find opportunities through RCEP, and Chinese provinces were on board.  Treasury yields moved higher in early Monday trading, with 10-year up to 2.96% and the 30-year trading at 3.11%.

On Friday, the choppy consolidation range continued to challenge and frustrate traders when the bears showed up to end the week on a selling note.  However, with bonds rising ahead of key inflation data at the end of the week, the bulls are back at work in the futures market this morning.  As a result, the VIX fell just slightly below the 25 handles, and the T2122 indicator shows a short-term oversold condition as the new trading week begins.  Though we have a lot of clues that our economy is in decline due to intense inflationary pressures, speculation buying remains remarkably resilient.  Through I expect a push to test the DIA 50-day average, traders should watch the overhead resistance levels for clues of the next bearish attack.  I suspect we still have a very challenging summer ahead of us, as many big investment banks have warned.  Remember, the Fed Put is no longer in place as they raise rates and roll off the balance sheet.

Trade Wisely,

Doug