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Rapid Rise in Bonds

September 29, 2021 by Doug Campbell

Though big tech has seemed impervious to all bearish attacks of late, the rapid rise in bonds proved to be their kryptonite. Other worries such as debt ceiling deadlines, rising inflation, fading consumer confidence, and Chinese real estate impacts only added to the selling pressure creating severe technical damage to the index charts. As a result, the DIA, SPY, and QQQ charts now indicate bearish trends, and though bonds pulled back modestly, this morning risk remains high as their rally could soon continue. As a result, expect price volatility to remain very challenging in the days ahead.

Overnight Asian markets traded mixed but mostly lower, with the NIKKEI plunging 2.12% as investors wait to see if Evergande can make Wednesday’s bond payments. European markets trade green across the board, working to recover some of yesterday’s selloff. Ahead of earnings, Pending Home Sales, Petroleum status numbers, and more Congressional testimony from Powell, U.S. futures point to a bullish open hoping to recover some of yesterday’s losses. So buckle up; it could be another wild price action day.

Economic Calendar

Earnings Calendar

On the mid-week earnings calendar, we have eight confirmed reports. Notable reports include CTAS, MLHR, JBL, NG, & WOR.

News & Technicals’

Jamie Dimon said the country’s largest lender has begun scenario-planning how a potential U.S. credit default would affect the repo and money markets, client contracts, and capital ratios. “This is like the third time we’ve had to do this, and it is a potentially catastrophic event,” he said. In a filing to the Hong Kong exchange on Wednesday, Evergrande said it would sell the 1.75 billion shares in Shengjing Bank to the Shenyang Shengjing Finance Investment Group at 5.70 yuan per share. Last week, the property firm already missed one key $83.5 million coupon payment on an offshore March 2022, $2 billion bonds. Markets are closely watching to see if the firm will meet its $47.5 million interest payment due Wednesday. Sen. Elizabeth Warren charged that Fed Chairman Jerome Powell had led an effort to weaken the nation’s banking system, and she would oppose his renomination. In remarks made during a Senate hearing, the Massachusetts Democrat cited several instances where she said the Powell Fed has watered down post-financial crisis bank regulations. U.S Treasuries retreated Wednesday morning, with the 10-year yield falling to 1.496% and the 30-year sliding to 2.04%.

The rapid rise in bonds created an ugly selloff in the tech sector that until now has seemed impervious to bearish activities of late. Moreover, the uncertainty of the debt ceiling battle in Congress likely added some additional energy to the bears in yesterday’s rout. Additionally, comments from Jerome Powel that warned inflationary pressures would continue into the near future didn’t hope the situation. The unfortunate consequence is the severe technical damage created in the index charts. As a result, we will have to keep a close eye on bond rates in the future. Fed operations have kept yields in check, but the Fed could lose control is a growing concern. Legendary investor Jeremy Grantham used the term “magnificent bubble” to describe the current market condition comparing to 1929 and 2000. So be very careful rushing in to buy the dip because yesterday may have signaled a fundamentally different market condition.

Trade Wisely,

Doug

Premarket Bounce and More Fed Speakers

September 29, 2021 by Ed Carter

Markets gapped down significantly Tuesday and the bears piled on to follow-through into the early afternoon. Then after a short, mid-afternoon rally, we sold off again the last hour to end the day near the lows. This left us with big, ugly black candles in all 3 major indices that printed an Evening Star failing the 50sma in the DIA and a Dreaded-h pattern in the SPY and QQQ. Tech stocks took the worst of the beating with TWTR down 4.47%, GOOG down 3.76%, FB down 3.66%, and MSFT down 3.62%. On the day SPY lost 1.97%, DIA lost 1.63%, and QQQ lost 2.77%. The VXX rose 10% to 27.37 and T2122 fell hard to just inside the oversold territory at 17.25. The 10-year bond yields rose sharply, closing a 1544% and Oil (WTI) fell 0.85% to $74.81/barrel.

During the day, it was reported that the progressive faction of the House Democrats will defy Speaker Pelosi and oppose the $1 trillion bipartisan Infrastructure bill deal unless they get a vote at the same time on the more liberal portions of President Biden’s economic agenda. Meanwhile, in the Senate, Republican members blocked another Democratic attempt to raise the debt ceiling (the second time in two days). This comes after the Treasury Dept. announced the actual date the government will no longer be able to avoid a default on US debt (without a prior debt ceiling increase) is October 18. While many pundits claimed these impasses were the cause of Tuesday’s selloff and even with no deal is in sight, it still seems unlikely the US will default. A temporary shutdown of the government is quite possible, but default really serves no party’s interests, and certainly not the country’s interest, in the long run. However, analysts say that is what the market is fearing most and could be the proximate cause of a deeper pullback.

Interest rates rose last week, with a 30-year fixed-rate mortgage averaging 3.10% (up from 3.03% the week prior). This led total mortgage applications to fall 1.1% week on week. Interestingly, the rate-sensitive refinance application number was also only 1% lower than the prior week.

In miscellaneous news, last night TSLA CEO Elon Musk told an industry conference that the US Government should avoid regulating crypto. Cryptocurrency markets took heart from this, but it is quite unlikely even a billionaire like Musk has much sway with the Feds. Bloomberg reported this morning that the FDA will approve booster shots of the MRNA vaccine (in the same way it recently approved PFE booster shots). The huge tech names that led the beating are all showing a bounce (dead cat?) in premarket action. TWTR, TSLA, NFLX, MSFT, FB, and AAPL all up over three-quarters of a percent at 7:30 am.

Overnight, Asian markets were mostly in the red. Japan (-2.12%), Taiwan (-1.90%), Shanghai (-1.83%), and Shenzhen (-1.64%) led the region lower. Hong Kong (+0.67%) and Indonesia (+0.81%) bucked the trend. In Europe, markets are strongly in the green so far today. The FTSE (+0.85%), DAX (+0.95%), and CAC (+1.21%) are typical and leading the region higher at mid-day. As of 7:30 am, US Futures are pointing to a modest gap higher. The DIA is implying a +0.46% open, the SPY implying a +0.54% open, and the QQQ implying a +0.65% open at this hour. 10-year bond yields are down to 1.51% and Oil (WTI) is trading two-thirds of a percent lower in early trading.

The major economic news scheduled for release on Wednesday is limited to August Home Sales (10 am), Crude Oil Inventories (10:30 am), and a trio of Fed speakers (Chair Powell at 11:45 am), Bostic at 1 pm, and Williams at 5 pm. The major earnings reports scheduled for the day include CTAS, JBL, and WOR before the open. Then after the close, MLHR reports.

After such an ugly Tuesday, traditionally we would see a rebound (at least early) as traders anticipate that the prior day’s candle was an overreaction. This seems to be taking shape in premarkets. However, whether this modest gap-up is a true reversal is a completely different question. Beware massive volatility as the fear factors, whether they be a government shutdown, US debt default (as JPM CEO Dimon started to warn yesterday), the Delta variant, or just markets in need of a correction after such a long time without one all remain in place.

Remember you don’t have to trade every day. Cash is a perfectly valid position. Nobody has ever consistently predicted reversals. So, don’t think you can either. Consider waiting if you want to be long and stay nimble if you trade short as bear moves end faster than bull moves. Focus on the process and on managing the things you can control. It’s discipline and good trading rules that separate trading success from failure over the long run. Above all, consistently take profits when you have them. A good trader refuses to let greed turn their winners into losers.

Swing Trade Ideas for your consideration and watchlist: MMAT, FLR, WRK, PLUG, TSN, DOG, SPXU, SQQQ, UVXY. You can find Rick’s review of tickers on his YouTube Channel here. Trade your plan, take profits along the way, and smart. Also, remember to check for impending earnings reports. Finally, remember that any tickers we mention and talk about in the trading room are not recommendations to buy or sell.

🎯 Mike Probst: Rick, Got CTL off the scanner today. Already up 30%. Love it.

🎯 Dick Carp: the scanner paid for the year with HES-thank you

🎯 Arnoldo Bolanos: LTA scanner really works $$, thanks Ed.

🎯 Bob S: LTA is incredible…. I use it … would not trade without it

🎯 Malcolm .: Posted in room 2, @Rick… I used the LTA Scanner to go through hundreds of stocks this weekend and picked out three to trade: PYPL, TGT, and ZS. Quality patterns and with my trading, up 24%, 7% and 12%…. this program is gold.

🎯 Friday 6/21/19 (10:09 am) Aaron B: Today, my account is at +190% since January. Thanks, RWO HRC Flash Malcolm Thomas Steve Ed Bob S Bob C Mike P and everyone that contributes every day. I love our job.

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Disclosure: We do not act on all trades we mention, and not all mentions acted on the day of the mention. All trades we mention are for your consideration only.

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Bearish Candle Pattern

September 28, 2021 by Doug Campbell

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

Energy Crisis and Powell Testimony Lead

September 28, 2021 by Ed Carter

Markets gapped down again Monday but rallied again to test the 50sma resistance in all 3 major averages. Unfortunately for bulls, all 3 indices failed that test. This left us with Doji candles in the SPY and QQQ as well as a Shooting Star type candle in the DIA. On the day, SPY lost 0.29%, DIA gained 0.21%, and QQQ lost 0.80%. The VXX rose just a tad to 24.82 and T2122 remains in the mid-range at 69.67. 10-year bond yields spiked up to 1.491% and Oil (WTI) rose to $75.40/barrel.

During the day, two members of the FOMC announced their own early retirement. Boston Fed President Rosengren claimed his premature departure was due to a kidney illness, but Dallas Fed President Kaplan came out and acknowledged the trading disclosure issue. Those two were the Fed members recently identified as having owned millions of dollars of stock in companies which the Fed then purchased bonds. These announcements also came a day before Fed Chair Powell testifies before the Senate. In other Fed news, 3 FOMC members said they are ready to pull back on stimulus, but that they don’t feel any pressure from inflation. Fed members Brainard, Williams, and Evans all said they expect to see inflation lessening in 2022, but also feel comfortable removing stimulus now if the economy continues its current trajectory. This is another signal of the likely announcement of tapering of bond buying at the October Fed meeting. However, all 3 also stressed that their desire to begin tapering now in no way signals a change in the interest rate policy.

The global energy crisis continues and has caused Oil to spike as Brent prices soared above $80 on supply concerns. Part of the cause is supply disruptions in the US resulting from hurricanes Ida and Nicholas that shut down production in the Gulf of Mexico and destroyed rig, refinery, and pipeline infrastructure. In addition, in Africa, Nigeria and Angola have struggled to achieve their OPEC allotted production quotas due to mismanagement and underinvestment. In China, the problem is on the demand side as their government has implemented painful electric usage limits in order to meet climate emissions goals. This could be the backdrop for Elon Musk’s recent praise of the Chinese government. Bloomberg reports AAPL phone manufacturing plants are being given special treatment under the new restrictions because AAPL has “played ball” with Chinese officials. It could be that Musk is simply trying to curry special treatment for TSLA’s Chinese plants as well.

Last night F and South Korean firm SK Innovations announced a joint project that includes $11.4 billion in investment to build electric vehicles and batteries. This is the largest investment in production plants in F history. The project calls for 4 plants in the states of KY and TN, which should result in 11,000 new jobs.

Overnight, Asian markets leaned heavily to the red. Australia (-1.47%), South Korea (-1.14%), and Taiwan (-0.76%) led the way lower. Hong Kong (+1.20%), Malaysia (+0.90%), and Shanghai (+0.54%) were the only green in the region. In Europe, markets are also showing red across the board with the lone exception of Russia (+0.44%) who is green on the strength of being a major oil producer. The FTSE (-0.51%), DAX (-1.34%), and CAC (-1.74%) are leading the continent lower as of mid-day. The German fall could be partially due to smaller parties (Greens and FDP) being the coalition “king maker” for the next ruling party after a tight election Sunday. As of 7:30 am, US Futures are pointing toward a significant gap lower. The DIA is implying a -0.43% open, the SPY implying a -0.95% open, and the QQQ implying a -1.73% open. This comes as the Dollar has popped higher and 10-year bond yields are soaring to 1.537% in early trading.

The major economic news scheduled for release on Tuesday includes August Trade Balance and August Retail Inventories (both at 8:30 am), Conf. Board Consumer Confidence (10 am), Fed Chair Powell testifies (10 am), and two other FOMC speakers (Bowman at 1:40 pm and Bostic at 3 pm). The major earnings reports scheduled for Tuesday include FERG, INFO, SNX, THO, and UNFI before the open. Then after the close, CALM and MU report.

The week started with indecision and failure at resistance. It appears the bears are trying to follow through this morning. Beware of more volatility, especially in the QQQ names, as traders flee from the tech-led recovery trade. Also, remember we are just days from the month and Q3 end. So, the potential for rotation and window-dressing comes into effect. Lastly, Fed Chair Powell testifies before the Senate today and other Fed speakers have their say in public. These words may well stir markets.

Don’t worry about the things you can’t control. Manage your existing trades before you chase any new ones. Focus on the process and on managing the things you can control. Remember that it’s discipline and good trading rules that separate trading success from failure over the long run. Above all, consistently take profits when you have them. A good trader refuses to let greed turn their winners into losers.

Swing Trade Ideas for your consideration and watchlist: No trade ideas today. You can find Rick’s review of tickers on his YouTube Channel here. Trade your plan, take profits along the way, and smart. Also, remember to check for impending earnings reports. Finally, remember that any tickers we mention and talk about in the trading room are not recommendations to buy or sell.

🎯 Mike Probst: Rick, Got CTL off the scanner today. Already up 30%. Love it.

🎯 Dick Carp: the scanner paid for the year with HES-thank you

🎯 Arnoldo Bolanos: LTA scanner really works $$, thanks Ed.

🎯 Bob S: LTA is incredible…. I use it … would not trade without it

Hit and Run Candlesticks / Road To Wealth Youtube videos

Disclosure: We do not act on all trades we mention, and not all mentions acted on the day of the mention. All trades we mention are for your consideration only.

Free YouTube Education • Subscription Plans • Private 2-Hour Coaching

Bullish Improvement

September 27, 2021 by Doug Campbell

The tremendous relief rally created a lot of bullish improvement in the index charts, but with overhead price resistance above, we can sound the all-clear just yet. The Dow has the most significant challenge still under its 50-day average despite more than a 1200 point rally from last Monday’s low. As we wait for Congress to deal with the debt ceiling and possible trillion-dollar infrastructure vote, choppy uncertain price action is possible. The results of the Durable Goods number will likely set the tone for the morning session. Economists expect an improvement over the last month’s negative reading.

Asian markets struggled to find direction overnight, closing mixed as investors search for clarity and the impacts of the Evergrande default. European markets trade mixed with modest gains and losses as they sorted out the details of the German election results. U.S. futures also point to a mixed open with Durable Goods numbers ahead of the open and the political uncertainty of the debt ceiling vote later this week.

Economic Calendar

Earnings Calendar

To kick off the week, we have 11 companies listed on the earnings calendar, but most are unconfirmed. Notable reports include CNXC and ACB.

News & Technicals”

We have an interesting political news week that could move markets. First, U.S. House of Representatives Speaker Nancy Pelosi reiterated Sunday that she expects the $1 trillion bipartisan infrastructure bill to pass this week now set for Oct. 1^st. However, many from her party oppose the bill saying they will not pass it until the 3.5 trillion social programs bill is passed. Congress is also against a debt ceiling deadline that could shut down the government if not completed in time. We also have a big week of Fed conversation with Powell testifying to Congress and FOMC committee members speaking throughout the week. Finally, preliminary results on Monday morning showed the center-left Social Democratic Party gaining 25.8% of the vote, according to the country’s Federal Returning Officer. The election is significant because it heralds the departure of Angela Merkel, who is preparing to leave office after 16 years in power.

There was a lot of bullish improvement last in the index charts, hoping that we could zoom right back to set new record highs. However, with overhead price resistance, debit ceiling uncertainty, as well as a possible trillion-dollar infrastructure bill, passing we could see an uneasy market gyration as we wait. Durable Goods number this morning will likely set the stage for the morning session. Economists expect an improvement from last month -0.1 reading to a 0.6%. The DIA has the most significant challenge still below its 50-day average after rallying 4% off last Monday’s low.

Trade Wisely,

Doug

Fed Speakers and Congress Lead News

September 27, 2021 by Ed Carter

Markets gapped down three to six-tenths of a percent on Friday, following Europe, and reacting negatively to China’s website statements about cryptocurrencies. However, once traders remembered this was nothing new, stocks recovered and then ground sideways until a rally the last two hours of the day. Profit-taking the last 10 minutes pulled us down off the highs. This left us with strong white candles that had small upper wicks in all 3 major indices. On the day, SPY gained 0.18%, DIA gained 0.10%, and QQQ gained 0.10%. For the week, all of Monday’s ugly gap down has been recovered. The VXX ended the day at 24.57 and T2122 fell back to 59.09 (mid-range). 10-year bond yields continued their climb, reflecting the Fed news that bond purchases will soon begin to be tapered. Finally, Oil (WTI) rose another percent to $73.98/barrel.

After weekend committee actions Saturday, this promises to be a big week on several fronts related to US Government domestic spending. House Speaker Pelosi says she expects the $1 trillion bipartisan Infrastructure bill to pass this week (possibly as soon as today). The $3.5 trillion Budget Reconciliation bill is also headed for debate and a vote in the House. Whether it passes (avoiding a government shutdown on Friday) is entirely in Democratic hands since the Speaker and Senate Majority Leader have gone the one-party route. An increase in the debt ceiling (which would avoid a default on US debt sometime in early October) is also coupled to the reconciliation bill. As of Sunday, Pelosi said it was self-evident that the size of the bill will drop to appease moderate Democrats.

Over the weekend, the UK suffered widespread fuel shortages. Among the fuel outages was BP, who said “more than 30% of its 1,200 stations have run out of fuel” as of Sunday. RDS.A and XOM are both reported similar situations. This “out of fuel” situation resulted from a large-scale driver shortage among the major fuel retailers, which led to panic buying among the public across the country. On Saturday, the UK government issued 5,000 work visas to allow drivers to come in from Europe. However, the main UK trucking industry group claims the country is in desperate need of 20 times that number of drivers.

In an interesting twist in the cryptocurrency markets, following Beijing’s Central Bank declaration of all crypto transactions being illegal, Huobi and Binance (two of the largest crypto exchanges) have fallen in line with the declaration. Neither will accept new account registrations from Chinese mobile phone numbers and both plan to close existing Chinese-owned accounts in a phased manner over Q4. It is unclear, exactly why these non-Chinese companies would follow Chinese rules. However, this sets the precedent that would effectively end the crypto ideal of a currency not regulated and controlled by governments.

Overnight, Asian markets were mixed on generally modest moves with an outlier to the upside in Singapore (+1.27%). Japan (-0.03%), Hong Kong (+0.07%), and Shenzhen (-0.09%) were flat with Shanghai (-0.84%) down and Taiwan (+0.31%) higher. In Europe, markets are also mixed but lean to the green side following German elections on Sunday (apparently shifting slightly to the left). The FTSE (unchanged), DAX (+0.33%), and CAC (+0.24%) are typical (with the outlier of Denmark (-1.35%) at mid-day. As of 7:30 am, US Futures are pointing toward a mixed open that leans to the red side. The DIA is implying a +0.17% open, the SPY implying a -0.10% open, and the QQQ implying a -0.49% open at this hour. The Dollar is up and 10-year bond yields have jumped to 1.489% with Oil (WTI) topping $75/barrel in early trading.

The major economic news scheduled for release on Monday is limited to August Durable Good Orders (8:30 am) and 2 more Fed speakers (Williams at both 9 am and noon, and Brainard at 12:15 pm). There are no earnings reports scheduled for before the open. However, after the close CNXC reports.

As we start the last week (four days) of the month and Q3, stocks are looking to continue the most recent rally, which followed last week’s big Monday Evergrande scare. Beware of more volatility and the potential for rotation this week as window-dressing comes into effect. We also have many Fed speakers this week, including Fed Chair Powell’s Congressional testimony. In early Monday stock news, GOOG announced it will slash the commissions it charges on its cloud marketplace from 20% to 3%. This may be a response to the recent AAPL App Store court ruling.

Manage your existing trades before you chase any new ones. Focus on the process and on managing the things you can control. Don’t worry about the things you can’t control. Remember that it’s discipline and good trading rules that separate trading success from failure over the long run. Above all, consistently take profits when you have them. A good trader refuses to let greed turn their winners into losers. Finally, it is Friday, so consider how you want your account sitting Monday morning, and don’t forget to pay yourself.

🎯 Mike Probst: Rick, Got CTL off the scanner today. Already up 30%. Love it.

🎯 Dick Carp: the scanner paid for the year with HES-thank you

🎯 Arnoldo Bolanos: LTA scanner really works $$, thanks Ed.

🎯 Bob S: LTA is incredible…. I use it … would not trade without it

Hit and Run Candlesticks / Road To Wealth Youtube videos

Disclosure: We do not act on all trades we mention, and not all mentions acted on the day of the mention. All trades we mention are for your consideration only.

Free YouTube Education • Subscription Plans • Private 2-Hour Coaching

Recovery Rally

September 24, 2021 by Doug Campbell

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

Budget-Debt Limit Fight and China Crypto Statement

September 24, 2021 by Ed Carter

Markets gapped higher at the open Thursday and then followed through strongly the first half-hour of the day. Then we saw a very slow, steady rally into 2 pm before doing a very slow, steady selloff into the close. This left us with strong, white, gap-up candles that left an upper wick in all 3 major indices. On the day, SPY gained 1.21%, DIA gained 1.48%, and QQQ gained 0.92%. The VXX fell over 6% to 25.37 and T2122 rose to just outside the overbought territory at 76.21. 10-year bond yields spiked to 1.427% and Oil (WTI) rose 1.4% to $73.24 even though the Dollar fell on the day.

During the day, the White House began alerting federal agencies to prepare for a government shutdown next Thursday night. Democrats are scrambling to move ahead with a bill that links the budget (government shutdown) with increasing the debt ceiling (the next crisis). Bloomberg reports that House Speaker Pelosi and Senate Majority Leader Schumer are now pointing to a showdown vote on Saturday. If the vote fails, we can expect more machinations next week and a probable shutdown next Friday. To this point, these issues have been ignored by markets, but with the weekend news cycle ahead, Fed meeting behind, and events drawing nearer, today may be a new story.

After the close, the CDC endorsed the use of PFE booster shots for older and at-risk patients. TRIP reported a missed on both lines last evening. Meanwhile, NKE reported a miss on revenue, but COST managed a beat on both lines. NKE is down 5% in premarket even as TRIP is down half of a percent and COST is up six-tenths of a percent this morning.

Overnight, Bitcoin and other major cryptocurrencies fell by more than 5%. Ethereum, the second-largest crypto fell more than 8%. The moves come after China’s Central Bank posted a Q&A on its website that said all crypto-related activities are illegal and that there would be a harsh crackdown on that entire market. This is not China’s first attack on the alternate currencies, but adding to the earlier moves against crypto mining along with the country’s trials of their own digital currency last year, some analysts believe this is the start of their move to force the use of only government-transparent digital currencies. This is a move likely to be followed by all major powers as governments do not want to give up control of and visibility to at least as much of all transactions as they have now. In other foreign political news, polls say Germany is poised to see a new ruling party after elections on Sunday. (The current CDU has been in power since 2005.)

Overnight, Asian markets were mixed. Japan (+2.06%) and Taiwan (+1.07%) stood out on the upside while Hong Kong (-1.30%) and Shanghai (-0.81%) stood out to the downside. In Europe, stocks are red across the board at mid-day. The FTSE (-0.20%), DAX (-0.72%), and CAC (-0.94%) are representative. However, the much smaller exchanges are feeling the hit much harder. Greece (-2.28%), Norway (-1.89%), and Finland (-1.56%) lead the pain parade in early afternoon trading. As of 7:30 am, US Futures are pointing toward a gap-down at the bell. The DIA is implying a -0.38% open, the SPY implying a -0.50% open, and the QQQ implying a -0.67% open at this hour. The Dollar is rebounding this morning as 10-year bond yields are at 1.417% and Oil (WTI) is down a third of a percent in early trading.

The major economic news scheduled for release on Friday is limited to August New Home Sales (10 am) and a trio of Fed speakers (Chairman Powell, Bowman, and Clarida all at 10 am). The major earnings reports scheduled for the day are limited to CCL before the open. There are no earnings reports scheduled for after the close.

A volatile week that started with a sizeable Evergrande gap-down and has proceeded with a whipsaw-filled recovery of that gap is now about to wind down. With more Fed speakers seeking to soothe markets on tap for today, but the prospect of a showdown vote over a government shutdown and debt ceiling coming this weekend…do not be surprised if we see a Mr. Market be manic again today. The short-term trend is now bullish, but we have yet to take out the downtrend that goes back to the beginning of the month, at least in the SPY and QQQ. So, the bulls still have serious work ahead if they want to overcome the pullback’s technical damage.

🎯 Mike Probst: Rick, Got CTL off the scanner today. Already up 30%. Love it.

🎯 Dick Carp: the scanner paid for the year with HES-thank you

🎯 Arnoldo Bolanos: LTA scanner really works $$, thanks Ed.

🎯 Bob S: LTA is incredible…. I use it … would not trade without it

Hit and Run Candlesticks / Road To Wealth Youtube videos

Disclosure: We do not act on all trades we mention, and not all mentions acted on the day of the mention. All trades we mention are for your consideration only.

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Repairing Technical Damage

September 23, 2021 by Doug Campbell

The relief rally is underway, but unfortunately, a lot more work is still needed to repair the technical damage in the index charts. Though they gave no beginning date, the Fed says tapering is on the way. China has smoothed the waters in the Evergrande default by essentially nationalizing the company, but there are still questions if the contagion has spread to other companies. So keep an eye on overhead and technical resistance in the index charts as the bears could mount their defense there. With Jobless Claim and PMI ahead, stay focused as it could improve or even reverse the open.

Asian markets traded mixed overnight, with the HSI recovering some of its recent losses, rising 1.19%. However, European markets see modest gains across the board this morning, apparently pleased with the Fed’s actions. U.S. futures point to a bullish gap-up open with an overhead resistance challenge above ahead of earnings and economic data. Relief rallies are fantastic but remember, they can also be quite volatile, so trade wisely.

Economic Calendar

Earnings Calendar

We have the biggest day on the earnings calendar this week, with 23 companies listed. Notable reports include DRI, NKE, AIR, CAN, CAMP, COST, PRGS, RAD, TCOM, & MTN.

New & Technicals’

The FDA authorized Covid vaccine booster shots for people 65 and older. Those 18 through 64 years old who are at high risk of developing severe Covid are eligible. Individuals 18 through 64 years of age who are frequently exposed to Covid either through their work or “institutional” exposure to the virus are also eligible. The ongoing semiconductor chip shortage is expected to cost the global automotive industry $210 billion in revenue in 2021, according to consulting firm AlixPartners. The forecast is up by 91% from an updated forecast of $110 billion in May. The Fed kept benchmark interest rates anchored near zero. Officials indicated they expect to reduce monthly asset purchases “soon” but did not say when. Economic projections pointed to slower overall growth this year but higher inflation than previously projected. Evergarnde surged overnight when China essentially nationalized the company.

We had a great rally yesterday, but a lot more work is necessary to repair the technical damage in the index charts. All four indexes may soon test overhead resistance levels and downtrend, which will likely be the battlezone for the bulls and bears. Remember, we still have the battle ahead in the Senate over the debt ceiling as the House scrambles to pass nearly 5 trillion in additional spending. So expect some political bumps ahead. Speaking of bumps, we have Jobless Claims and PMI numbers this morning that could improve the bullish open futures currently suggest or bring out bears depending on the result. Stay focused and flexible because relief rallies can often have volatile price action that can even include retests of recent lows.

Trade Wisely

Doug

Traders Digest Fed as Bulls Try to Rally

September 23, 2021 by Ed Carter

Markets gapped four to six-tenths of a percent higher Wednesday as fears over the Chinese Evergrande debt crisis faded. The bulls followed though all morning and then volatility set in during the afternoon after the Fed announcement and press conference. This left us with gap-up indecisive Spinning Top candles in all 3 major indices. On the day, SPY closed up 0.98%, DIA gained 0.99%, and QQQ gained 0.93%. The VXX fell over 6% to 27.06 and T2122 rose a bit but remains in the mid-range at 68.70. 10-year bond yields fell to 1.307% and Oil (WTI) gained 2% to $71.95/barrel.

The FOMC held rates near zero as expected Wednesday afternoon. Fed Chair Powell also said that the tapering of asset buying will come soon, which most analysts expect to mean the taper will start in November following an October announcement. During questions, Powell implied the taper (any purchases) would come to an end in mid-2022. The Fed now forecasts 5.9% GDP growth for the year (down from a 7% forecast in June) and 3.8% in 2022 (versus the June 3.3% estimate). They expect inflation of 3.7% for the year (versus 3% previous estimate) and 2.3% for 2022 (compared to the June estimate of 2.1%). Powell also told reporters that the Fed is considering “whether to issue” their own cryptocurrency (and perhaps in a more telling follow-up answer “in what form that may be”).

After the close, FB announced its Chief Technology Officer is stepping down. In other evening news, Auto Industry consulting firm AlixPartners has raised its forecast of lost vehicle sales due to the global chip shortage. The firm now estimates 7.7 million units of lost production for 2021 (up from 3.9 million in their May forecast), which would amount to $210 billion in lost revenue for the industry. This will primarily be felt by US giants GM, F, and FCAU (Fiat, Chrysler, Dodge, and Jeep), because the Japanese auto industry had a normal practice of holding a year’s worth of supply inventory in their supply chain. Now that the inventory has been used up, Japanese auto firms are hurting as well, but they postponed their pain far longer than US automakers.

The FDC is set to vote on PFE booster shots for “older and at-risk patients” today. In the meantime, Covid-19 surpassed the 1918 Spanish Flu as the deadliest pandemic in US history on Monday. As of yesterday, the US has seen 43.4 million total cases and 699,748 total deaths in the country. Meanwhile, the averages 130,121 new cases and 1,678 new deaths per day across America. In related news, yesterday the President announced the US will buy another 500 million doses of the PFE vaccine to donate to poorer nations, raising the total US donation commitment to 1.1 billion doses.

Overnight, Asian markets were mostly higher as China pumped $17 billion of liquidity into their banking system and told local governments to “prepare for a storm and be ready to step-in (if needed) at the last minute” to prevent spill-over events from the Evergrande defaults. Japan (-0.67%) and South Korea (-0.41%) were the only red in the region today. India (+1.57%), Hong Kong (+1.19%), and Australia (+1.00%) were the leaders to the upside. In Europe, markets are green across the board at mid-day. The FTSE (+0.05%) is the laggard after British PM Johnson failed to get the trade deal he had been promising prior to and shortly after Brexit. However, the DAX (+0.76%) and CAC (+0.85%) are typical of the region, even though some of the smaller exchanges are up almost 1.5% in early afternoon trading. As of 7:30 am, US Futures are pointing toward another gap higher. The DIA is implying a +0.47% open, the SPY implying a +0.52% open, and the QQQ implying a +0.54% open. 10-year bond yields are flat with Oil down three-quarters of a percent even as the Dollar is down sharply in early trading.

The major economic news scheduled for release on Thursday is limited to Weekly Jobless Claims (8:30 am), Mfg. PMI and Services PMI (both at 9:45 am). The major earnings scheduled for the day include CAN, DRI, and RAD before the open. Then after the close, AIR, COST, NKE, and TCOM report.

As markets digest (second-guess) the Fed results and afternoon reaction and fear over the Chinese debt default from Evergrande fades, US stocks are looking to rally at the open again. The question is whether the overhead resistance created on the recent pullback will hold or if the bulls will have their way. Either way, volatility remains elevated, the short-term trend remains bearish, and the next news story will be the success or failure of both the US Debt Ceiling raise and passing a budget to allow continuing government operations after September. It now appears any bipartisan efforts have failed, which leaves open the question of whether Democrats can come together enough to ram-through one-party solutions to those problems.

Remember, the trend is your friend until it ends. Right now, that trend remains bearish with a lot of volatility. So, manage your existing trades before you chase any new ones. Focus on the process and on managing the things you can control. Don’t worry about the things you can’t control. Discipline and good trading rules are what separates trading success from failure over the long run. Above all, consistently take profits when you have them. A good trader refuses to let greed turn their winners into losers.

Swing Trade Ideas for your consideration and watchlist: PLUG, FCEL, BB, NET, PLTR. You can find Rick’s review of tickers on his YouTube Channel here. Trade your plan, take profits along the way, and smart. Also, remember to check for impending earnings reports. Finally, remember that any tickers we mention and talk about in the trading room are not recommendations to buy or sell.

🎯 Mike Probst: Rick, Got CTL off the scanner today. Already up 30%. Love it.

🎯 Dick Carp: the scanner paid for the year with HES-thank you

🎯 Arnoldo Bolanos: LTA scanner really works $$, thanks Ed.

🎯 Bob S: LTA is incredible…. I use it … would not trade without it

Hit and Run Candlesticks / Road To Wealth Youtube videos

Disclosure: We do not act on all trades we mention, and not all mentions acted on the day of the mention. All trades we mention are for your consideration only.

Free YouTube Education • Subscription Plans • Private 2-Hour Coaching