Yesterday’s morning surge of buying faded by the end of the day, which left behind a bearish candle pattern and raised concerns about a possible failure pattern at the Dow 50-day average.  Though the price action was indecisive, the SPY and QQQ also ended the day back below their 50-day averages suggesting the relief rally momentum has faded.  With Powell warning of continued inflationary impacts, the sharp rise in bond yields, coupled with a looming debt ceiling deadline, there is plenty of uncertainty to unsettle markets.  Expect price volatility to remain high as we wait.

Asian markets traded mixed as economists cut China’s GDP forecasts and concerns that the Evergrande real estate impacts have spread into Hong Kong.  European markets traded decidedly bearish this morning as tech shares leading the way lower.  Ahead of earnings, economic data, and Fed testimony in Congress, U.S. Futures point to gap down open.

Economic Calendar

Earnings Calendar

On the Tuesday earnings calendar, we have 18 companies listed, with about half of them unconfirmed.  Notable reports include MU, CALM, FDX, INFO, THO, & UNFI.

News & Technicals’

Jerome Powell will testify today in Congress regarding the Fed’s economic response to the pandemic.  According to his prepared comments, he will caution that the cause of the recent rise in inflation may last longer than anticipated.  “Inflation is elevated and will likely remain so in coming months before moderating.” Wells Fargo is back in the news this morning for defrauding currency customers.  The bank allegedly overcharged 771 businesses on foreign exchange transactions from 2010 through 2017, according to the U.S. Justice Department lawsuit filed Monday.  Wells Fargo told the commercial customers that they were being charged specific fixed rates but then incentivized salespeople to “overcharge FX customers,” according to the filings. Finally, Goldman Sachs cut its forecasts for China’s economic growth in 2021 as constraints on energy consumption added to headwinds facing the world’s second-largest economy.  S&P Global Ratings also lowered its 2021 GDP forecast for China and said uncertainty in the Chinese economy would affect growth prospects across Asia-Pacific.  The rise in U.S Treasuries has begun to concern investors, with the 10-year topping 1.54% this morning and the 30-year spiking to 2.0635% in early morning trading. 

The morning surge in the Dow tested its 50-day average as resistance but left behind a bearish candle pattern, raising concerns about what happens next.  The SPY and the QQQ also closed the day back below their 50-day averages with indecisive price action, while the surge in oil prices lifted IWM for a bullish close. Finally, the VIX ended the day slightly higher, recovering its 50-day and holding onto its upside trend as the relief rally loses momentum.  Today we will get readings on International Trade, House Prices, and Consumer Confidence while digesting comments from Powell & Yellen during congressional testimony later this morning.  The steep rise in bond yields over the last few days is beginning to worry investors as Jowell warns that the impacts of inflation are likely to continue longer than expected.  With the debt ceiling deadline looming, there is ample reason for uncertainty so expect price volatility to remain high. 

Trade Wisely,

Doug