Punishing Intraday Whipsaw

Punishing Intraday Whipsaw

With the hope of a relief rally, the Dow surged in the morning session only to produce a punishing intraday whipsaw that erased more than 750 points by the close.  In addition, both the DIA and QQQ failed through their 200-day averages, adding to the technical damage of this selloff.  Finally, the disappointing NFLX earnings could create more downside pressure adding insult to injury.  Although we are oversold in the short term, the SPY could easily visit its 200-day average today.  Next week, a Fed decision is likely to keep uncertainty and price volatility high as we head into the weekend.

Asian markets traded mainly lower overnight tracking U.S. markets.  European markets trade decidedly bearish this morning, seeing red across the board.  Although U.S. futures bounced from overnight lows, they currently suggest a lower open, with the tech sector leading the way.  Expect another challenging day of price action as we wait on next week's Fed decision.

Economic Calendar

Earnings Calendar

We get a little break on the Friday Earnings calendar with just five verified reports.  Notable reports include ALLY, FHB, HBAN, INFO, & SLB.

News & Technicals’

Netflix rarely says streaming competition is a concern for the company but did so in its Q4 2021 earnings report on Thursday.  After hours, Netflix shares fell more than 18% after forecasting just 2.5 million new net global subscribers for its first quarter.  In addition, Netflix last week announced it was raising prices in the U.S. and Canada, potentially exacerbating competitive pressures.  Peloton said its fiscal second-quarter revenue would be within its previously forecasted range, as it takes actions to slash costs and improve profitability.  However, the company added fewer subscribers in the latest period than expected.  CEO John Foley said the company is focused on “identifying reductions in our operating expenses as we build a more focused Peloton moving forward.”  Shares of Peloton closed down 23.9% at $24.22 on Thursday, wiping roughly $2.5 billion off of its market value.  Last month, Russia set out several main demands on Ukraine, among other security matters, in a draft security pact.  The document demanded that the U.S. must prevent the further eastward expansion of NATO and must not allow former Soviet states to join the alliance.  U.S. intelligence agencies are warning that Russia could be weighing a potential invasion of Ukraine, with the Kremlin moving 100,000 troops close to the border.  Treasury yields pulled back in early Friday trading, with the 10-year dipping to 1.7919% and the 30-year falling to 2.1103%.

After a morning rally that at one point pushed the Dow up 450 points, we experienced a punishing intraday whipsaw, closing more than 300 down and failing its 200-day average.  The QQQ also failed below its 200-day average and may follow-through lower this morning after the very disappointing NFLX report that sold off nearly 20% in after-hours trading.  Futures traded sharply lower in overnight trading but have recovered substantially this morning.  With a light day of earnings and economic reports, it could be a challenging day of price action as we slide into the weekend worries about the Fed decision next week.  Although indicators show we are in a short-term oversold condition, we can’t rule out the possibility that futures might retest the overnight low in the futures.  One thing is for sure the price volatility will likely continue to be highly frustrating and challenging in the days ahead.

Trade Wisely,

Doug

Relief Rally?

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

Fear of an Aggressive Fed

Aggressive Fed

Fear of a more aggressive Fed confirmed downtrends with lower lows in four indexes as Treasury yields spiked, spooking investors.  Sadly, yields continue higher this morning, and the mixed bag of earnings results so far adds yet another layer of uncertainty.  The short-term oversold condition in the T2122 indicator suggests a relief rally could begin at any time but expect the price action to remain very challenging.  Geopolitical as Russia threatens invasion of Ukraine will also keep the market on edge and have negative market impacts if cooler heads don’t prevail.

Overnight Asian markets traded mainly in the red, with the Nikkei falling 2.80%.  However, European markets try to begin a relief rally with modest gains in a choppy early session.  U.S. Futures also point to a cautiously bullish open ahead of market-moving earnings and housing data.  Expect price action to remain volatile as the QQQ nears a test of its 200-day average.

Economic Calendar

Earnings Calendar

We have just over 40 companies listed on the Wednesday earnings calendar, most of them confirmed.  Notable reports UNH, AA, ASML, CFG, CMA, DFS, FAST, FUL, KMI, MS, OFG, PACW, PG, PLD, STT, USB, UAL, & WTFC.

News & Technicals’

Dr. Bruce Aylward, a senior WHO official, warned high transmission levels to give the virus more opportunity to replicate and mutate, raising the risk that another variant will emerge.  New infections have increased by 20% globally over the past week, with nearly 19 million total reported cases.  “This pandemic is nowhere near over,” WHO Director-General Tedros Adhanom Ghebreysus said.  The Biden administration will make 400 million highly protective N95 masks available to Americans for free.  People can pick up the masks at thousands of pharmacies and community health centers.  The masks will become available next week, and the program will be fully up and running by early February.  Emirates, ANA, and Japan Airlines were among the carriers to cancel some U.S. flights over concerns that the new 5G service could interfere with some onboard systems.  AT&T and Verizon agreed to delay the deployment of 5G near airports temporarily but didn’t provide additional detail.  U.S. airlines had also prepared to cancel flights before the telecom giants agreed on the delay.  Genting filed to the Hong Kong exchange, and the company will “imminently be unable to pay its debts as they fall due” as liquidity dries up.  The embattled cruise operator said it applied to wind up the company at the Supreme Court of Bermuda after the company “exhausted all reasonable efforts to negotiate with the relevant counterparties under its financing arrangements.”  The 10-year Treasury yield continued higher in early Wednesday trading at 1.9%, and the 30-year climbed to 2.2036%

The bears went to work yesterday as fears of a more aggressive Fed pushed bond yields higher, confirming downtrend patterns in all four index charts.  The mixed earnings results have also raised the uncertainty level in markets as some big banks miss expectations.  However, there is a glimmer of good news if you’re a bull because the T2122 indicator is nearing a short-term oversold condition suggesting a relief rally could begin anytime.  If a rally does begin, keep a very close eye on all the price resistance levels above for entrenched bears.  Because stock valuations are so elevated, companies that miss expectations could experience significant selling this quarter, just as we saw in the huge volume decline in GS.  For the same reason, companies that meet or slightly beat expectations could easily experience a lackluster response from investors beaten and battered by all the recent price volatility.  Although I expect a relief rally to begin soon, the price action will likely be challenging, so plan your risk carefully.

Trade Wisely,

Doug

Buy-the-dip pain.

Buy-the-dip

It could be a painful day for all the buy-the-dip traders that rushed into positions as we headed for a 3-day weekend.  Surging bond yields and spiking oil prices suggest a substantial reversal at the open just as the 1st quarter earnings season ramps up.  All this uncertainty will likely create extreme levels of price volatility.  Very high stock valuations, a hawkish Fed with economic data hinting at a slowing economy during earnings season could be the perfect storm of uncertainty.  Get ready for substantial gaps, whipsaws, and overnight reversals to challenge even the most experienced traders.

Asian markets closed mostly lower overnight, losing momentum amid rising bond yields and geopolitical tensions spiking energy prices.   This morning, European markets see red across the board as a hawkish Fed appears ready to fight inflation.  Moreover, with 1st quarter earnings season ramping up, U.S.  futures point to nasty gap down open, reversing Friday’s dip-buying rally and potentially creating significant technical damage in the index charts.  So, buckle up; the path ahead appears volatile and uncertain.

Economic Calendar

Earnings Calendar

Nearly 30 companies listed as earnings season ramps up on the Tuesday earnings calendar.  Notable reports include BAC, BK, SCHW, CNXC, HWC, IBKR, JBHT, MBWM, ONB, PNFP, PNC, PRGS, SBNY, TFC & UCBI.

News & Technicals’

The United Arab Emirates has vowed to retaliate against Houthi militants for a deadly attack on its capital Abu Dhabi on Monday that killed three people.  International benchmark Brent crude was trading at $87.75 on Tuesday at 11 a.m. in Abu Dhabi, its highest level since 2014.  The UAE is the world’s seventh-biggest oil producer, pumping over 4 million barrels per day.  In addition, major U.S. airline CEOs warned of an impending “catastrophic” aviation crisis on Wednesday when AT&T and Verizon were set to deploy the new 5G service.  The airlines said the new service could potentially make a significant number of widebody aircraft unusable and “could potentially strand tens of thousands of Americans overseas.”  The FAA has warned that potential interference could affect sensitive airplane instruments such as altimeters and impact low-visibility operations.  The U.S. has reported nearly 800,000 cases per day on average over the past week, according to data compiled by Johns Hopkins University.  That’s more than three times the level seen during last winter’s previous record.  But there are signs of a possible turning point in the surge in places hit early by omicron.  Treasury yields jumped to a two-year high in early Tuesday trading, with the 10-year rising to 1.8305% and the 30-year climbing to 2.1492%.

On Friday, the gap down selling was met with a surge of buy-the-dip traders choosing once again to economic data.  But, unfortunately, they will suffer some punishment this morning as treasury yields surge and oil prices spike to a seven-year high on UAW tensions.  As a result, though the DIA recovered its 50-day average pressure this morning will likely see it open below, joining SPY, QQQ, and IWM already below that critical psychological support.  With 1st quarter earnings ramping up, expect the challenging price action to continue.  Company valuations are very high, so they will have to perform at near perfection to support current prices.  That may be a challenge with rising inflation combined with a tightening Fed.  The current market condition is not a time for wild speculation.  Instead, exercise caution, perhaps trading a mix of well-planned long and short positions to manage the high volatility risk.  The other option may be to stand aside protecting your capital until a more transparent market direction develops instead of all the whipsaws.

Trade Wisely,

Doug

Economic Impacts of Inflation

Economic Impacts of Inflation

The bulls did a good job ignoring the economic impacts of inflation throughout the morning session, but around mid-day, the bears emerged from hibernation.  Unfortunately, they left some lower highs in the indexes as we began the earning’s high price volatility session.  Stock valuations are very high, so companies will have to report solid results.   Anything is possible so expect wild price volatility with overnight gaps and reversals traders and investors react in the weeks ahead.

Asian markets closed red across the board even as China exports beat expectations.  European markets are also currently red across the board at the time of this report as they react to the hawkish comments from the Fed.  However, that is not the case here in the U.S.; futures lean toward a bullish open as we wait for big bank reports and retail sales numbers.  So, here comes the silly season!

Economic Calendar

Earnings Calendar

Today begins the 1st quarter earnings season kicking off will big bank earnings.  Notable reports include BLK, C, FRC, JPM, & WFC.

News & Technicals’

Philadelphia Fed President Patrick Harker said Thursday he sees three or four interest rate hikes this year as likely to fight inflation.  The policy tightening would respond to inflation that is running at the highest level in nearly 40 years.  While Harker expressed support for hikes and the end of monthly bond purchases, he favors waiting before decreasing the Federal Reserve’s $8.8 trillion balance sheet.  In addition, president Joe Biden will nominate Sarah Bloom Raskin to be the Federal Reserve’s next vice chair for supervision, a powerful regulatory role.  According to a person familiar with the matter, Biden will also nominate Lisa Cook and Philip Jefferson to serve as Federal Reserve governors.  The nominations come at a precarious time for the Fed, which has signaled it will soon move to raise interest rates to fight inflation in recent weeks.  Navient, one of the largest student loan servicers, will cancel $1.7 billion in private student loans after a deal it reached with 39 states.  The lender was accused of giving out private loans to students who could not pay them.  As part of the settlement, Navient denied that it violated the law.  On Thursday, the Supreme Court blocked the Biden administration from enforcing its sweeping vaccine-or-test requirements for large private companies.  But the conservative-majority court allowed a vaccine mandate to stand for medical facilities that take Medicare or Medicaid payments.  The OSHA mandate required that workers at businesses with 100 or more employees get vaccinated or submit a negative Covid test weekly to enter the workplace.  Treasury yields were again on the rise in early Friday trading, with the 10-year trading up to 1.7398% and the 30-year rising slightly to 2.0796%.

Although the market tried hard to ignore the economic impacts of inflation by mid-day, the bears went to work, creating some technical damage, particularly in the tech sector.  The lower high failures in SPY and QQQ are the most concerning and suggest more selling, BUT we have earnings to consider.   As we have seen in the past, earnings can disrupt any hint of bearishness if companies beat analysts’ estimates.  However, with current stock valuations so incredibly high, even the slightest miss could result in some swift punishment in price.  So, long story short, plan carefully and avoid over speculation.  Anything is possible, and we can expect substantial price volatility with overnight gaps and reversals possible.  So, fasten your seatbelt; silly season has begun!

Trade Wisely,

Doug

7% year-over-year Inflation

7% year-over-year Inflation

After learning, we have a 7% year-over-year inflation with income growth lagging behind more than 2%; the bulls found reason to push the DIA, SPY, and QQQ higher.  However, the IWM closed lower, and we should keep in mind despite the sharp rally, the Nasdaq and Russell remain below their 50-day averages.  This morning we will turn our attention to jobless claims and another reading on inflation with the PPI report.  Remember that we kick-off the big bank earnings Friday morning, so plan your risk accordingly.

Asian markets closed mixed with the Nikkei leading the selling.  European trade cautious this morning with small gains and losses with concerns about U.S. inflation.  However, investors seem to not share those concerns with the U.S. futures, pointing to a bullish open with jobless claims and PPI reports just ahead. 

Economic Calendar

Earnings Calendar

We have a light day on the Thursday earnings though we have more stocks listed with only a few confirmed reports.  Notable reports include DAL & TSM.

News & Technicals’

“It’s hard to process what’s happening right now, which is most people are going to get Covid,” acting FDA Commissioner Janet Woodcock said.  First, however, she said the U.S. must ensure the record levels of new infections do not disrupt essential services.  For example, the World Health Organization reported record numbers of cases of Covid-19 globally for a single week amid the omicron surge.  A report from the WHO published Tuesday noted that the highest numbers of new cases over the week came from the U.S., with 4.6 million new cases.  But hospitalizations are lower than previous surges, though the death rate remains unsustainably high.  According to a report from Douglas Elliman and Miller Samuel, the average apartment rent in Manhattan hit $4,440 in December.  The more widely watched net effective median rent rose to $3,392 — the highest level for December on record, the report said.  While many landlords are trying to work with existing tenants to limit the increases, some are being quickly priced out of a market they could finally afford in 2020.  According to new figures published on Wednesday, U.S. inflation came in at 7% in December on an annual basis, its highest print since 1982.  Curto told CNBC on Wednesday that the higher carbon and energy prices required to achieve governments’ emission reduction aims would prevent the kind of “normalization” that would pull inflation back down towards central bank targets.  Treasury yields are rising again in early Thursday trading, with the 10-year trading up to 1.7571% and the 30-year trading at 2.0985%.

We had a choppy price action day closing slightly bullish despite the 7% year-over-year inflation rate at the highest level since 1982.  The market reaction is surprising considering that rising wages and salaries are more than 2% behind the rising cost to the consumer.  The average cost of inflation to the consumer is now $5000.  While the DIA, SPY, and QQQ remained bullish and the technical picture improved, the QQQ and the IWM remained below their 50-day averages.  We will get another key inflation report before the bell with the PPI and weekly jobless claims.   Remember, Friday; we have retail sales, industrial production, and the big bank reports coming from BLK, C, JPM, and WFC as you plan forward.  So, let's get ready for another dose of price volatility.

Trade Wisely,

Doug

Recovery Rally Continued

Recovery Rally

The recovery rally continued Tuesday after a very turbulent start, with the Dow first sinking nearly 300 points.   If you feel the price action has become challenging, buckle up with two significant inflation reports and the beginning of earnings season; the wild price volatility may become even more challenging in the days ahead.  Be prepared for possible large point whipsaws and even full-on reversals that could occur overnight as the all-or-nothing market enters the silly season with valuations already extremely high.

Asian markets closed green across the board during the night, with Hong Kong advancing a whopping 2.79%.  This morning, European markets are bullish, with a bit more tentativeness in price action as they wait on inflation data.   Ahead of earnings and the CPI report, U.S. futures pump for more gains suggesting another gap up at the time of this report.  So, let's get ready for another wild ride!

Economic Calendar

Earnings Calendar

On the Wednesday earnings calendar, we have 18 companies listed with nine confirmed reports.  Notable reports include AONNY, BBCP, GHG, INFY, JEF, KBH, SJR, & VOLT.

News & Technicals’

The consumer price index is released by the Labor Department Wednesday and is expected to show headline inflation jumped by 7%, its fastest pace since 1982.  The Federal Reserve is already on a path to raise interest rates to battle rising prices.  So a hot number should justify the Fed's policy shift.  "It's still hot, hot, hot, and it's important because we're now where the Fed worries about that 7% number getting baked into wages and getting more entrenched," said Diane Swonk, chief economist at Grant Thornton.  On Tuesday, Federal Reserve Chairman Jerome Powell said that the economy is both healthy enough and in need of tighter monetary policy.  That likely will entail interest rate hikes, tapering of monthly asset purchases, and a smaller balance sheet.  Powell made the comments during a confirmation hearing in which key senators indicated they would be supporting him for a second term.  Russia’s dealings — or, more accurately, its clashes — with the West have focused on one country that has been a particular flashpoint for confrontations in recent years: Ukraine.  This week, this has come into focus with a series of high-stakes meetings taking place between Russian and Western officials.  The talks centered on trying to defuse heightened tensions between Russia and its neighbor Ukraine.  Treasury yields dipped once again ahead of CPI data in early Wednesday trading, with the 10-year slightly lower at 1.7428% and the 30-year edging lower to 2.0643%.

Tuesday notched another day in the recovery rally after a bumpy start selling off nearly 300 points to begin the day.  These huge point moves in this all-or-nothing market add substantial risk for the retail trader.  Although we have seen a significant technical damage improvement in the DIA and SPY, the large point moves open the door for damaging whipsaws or even full-on reversals with little to no pice action support below.  Since the low on Monday where the T2122 indicator nearly reached an oversold condition is now warning of an overbought condition.  Indeed an all-or-nothing condition with crucial inflation data and the beginning of earnings season could quickly increase the level of price volatility, adding to the challenging environment.  So stay focused, watching for potential large-point swing whipsaws and full-on reversals that could appear in the overnight session.  Despite all the bullish hype, keep in mind that a Hawkish Fed typically slows economic activity.  So trade wisely and avoid complacency.

Trade Wisely,

Doug

More Questions than Answers

More Questions than Answers

The big swing in yesterday’s indexes left more questions than answers with significant overhead resistance and tremendous risk for those jumping in should the lows be retested.  There is now talk of four rate increases this year, yet the institutions continue are putting out a steady stream of hype and predictions that the market should be higher.  Stick to your trading rules and stay focused on price action.  Market moves like this create a loss of emotional decision-making and enormous price swings that can damage the retail trader's accounts.  Work to avoid overtrading and getting caught up in the drama. 

Overnight Asian markets traded lower with worries of inflation on the mind of investors.  However, this morning, European markets are in rebound mode, seeing nothing but green across the board as they wait on the U.S. inflation data.  With a light day of earnings and Powell's testimony in the Senate just around the corner, U.S Futures point to a gap up open.  Keep a close eye on those overhead resistance levels for entrenched bears.

Economic Calendar

Earnings Calendar

We have nine companies listed on the Tuesday earnings calendar and with just four confirmed reports.  Notable reports include ACI and SNX.

News & Technicals’

Slapping sanctions on Russia may not help resolve tensions with the U.S. over Ukraine, two experts said Tuesday.  “Sanctions don’t work on Russia,” said Tony Brenton, a former British ambassador to Russia.  “Russia just becomes even more obdurate.”  Angela Stent of Georgetown University said many sanctions have been explicitly discussed in the U.S., but “that doesn’t seem to have deterred Russia at all.”  Federal Reserve Vice Chairman Richard Clarida said Monday he would be leaving his post-Friday, shortly before his term expired.  The resignation comes following more questions into stock fund trades for Clarida in February 2020.  “The two doses, they’re not enough for omicron,” Pfizer CEO Albert Bourla said.  Bourla said the two-dose vaccine does not provide robust protection against infection, and its ability to prevent hospitalization has also declined.  Bourla said third shots provide good protection against death and “decent” protection against hospitalization.  According to Mortgage News Daily, the average rate on the popular 30-year mortgage hit 3.64% on Monday morning, after rising sharply last week.  For the median-priced home, currently about $350,000, buyers putting down 20% will now see a monthly payment of $125 higher than they would have just three weeks ago.  Stocks of the public homebuilders are all down in 2022.  Treasury Yields declined in early Tuesday trading, with the 10-year dipping to 1.7569% and the 30-year declining to 2.0766%.

Yesterday’s massive sell-off and rebound left more questions than answers in the index charts.  Though the end-of-day surge will likely inspire the buy-the-dip buyers to rush back in, caution should be exercised as we approach the significant price resistance levels above.  However, big institutions seem to be singing off the same sheet of music, suggesting the sell-off is a significant market mispricing.  So, what's a trader to do?  Remember Price is King!  Stay focused on price and your trading plan and work to avoid the emotional reaction created by big price swings and all the talking head hot air.  Follow your trading plan making sure the risk you take is acceptable at all times, or emotion will take over your decision-making.  Today Powell will be testifying in the Senate as they move forward with his confirmation.   Expect price volatility to remain high, and remember we have inflation data coming our way first thing Wednesday morning. 

Trade Wisely,

Doug

Attention to Inflation

Attention to Inflation

Finishing last week lower, the market will now turn its attention to inflation and the kick-off to earnings with big bank reports on Friday.  In addition, Jerome begins congressional testimony on Tuesday, CPI Wednesday, PPI Thursday, and retail sale and industrial production on Friday.  All of this with the SPY, QQQ, and IWM in a precarious technical position adding to the uncertainty.  I think we can expect price volatility to remain high, so plan your risk accordingly.

Asina markets traded mixed with the HSI rebounding 1.08% overnight.  Across the pond, European markets trade mostly lower, albeit a choppy trading session.  Facing a big week of market-moving data, U.S. futures have recovered from overnight lows, but with treasury yields continuing to rise, the NASDAQ  remains under pressure this morning.  So trade wisely; it could prove to be a challenging week ahead.

Economic Calendar

Earnings Calendar

We have just eleven companies listed and only six verified reports to kick off the new trading week.  Notable reports include AZZ, CMC, and VOXX.

News & Technicals’

U.S. and Russian officials are in Geneva on Monday to begin a series of high-stakes talks this week.  Tensions remain higher than ever over Ukraine, but both sides have already warned prospects for a resolution are low.  Moreover, Russia has been building up its military presence at its border with Ukraine in recent months, leading to heightened concerns that Russian President Vladimir Putin is planning on invading the country.  Moscow denies such claims, saying it has a right to place troops where it likes within its territory.  Draghi’s government, comprised chiefly of politicians from different parties and some technocrats, has appeased markets due to its parliamentary support and reform plans.  However, analysts at Goldman Sachs said Draghi’s departure would “trigger uncertainty regarding the new government and its policy effectiveness.”  Over 1,000 of the country’s parliament and regional representatives will begin voting on Jan. 24.  North Korea is seeking to build up its missile capability to boost its “bargaining position,” says one political analyst, who pointed to the country’s latest attempt last week to test-fire a hypersonic missile.  On Thursday, state media claimed the country had test-fired a “hypersonic missile” the previous day.  “You start the new year, and North Korea does this type of test that shines the light back on it,” John Park, director of the Korea Project at the Harvard Kennedy School, told CNBC’s “Squawk Box Asia” on Monday.  Treasury yields climbed higher in early Monday trading, with the 10-year rising to 1.7975% and the 30-year trading at 2.1469%.

After finishing the week lower, the market will turn its attention to inflation and the congressional testimony of Jerome Powell.  While the DIA remains in a bullish technical position, the SPY, QQQ, and IWM indexes now have some challenges to overcome if the bulls want to remain in control.  The overhead resistance level is substantial, but I’m guessing there are still some very high hopes that earnings season can provide the inspiration needed.  We kick off the big bank earnings on Friday.  The Fed testifying in congress, inflation data, retail sales numbers, and the beginning of earnings season!  Add in geopolitical tensions with Russia and North Korea chiming in, and we have a week of uncertainty ahead.   What could go wrong with that?  Expect uncertainty and price volatility to remain high so plan your risk accordingly.

Trade Wisely,

Doug

A More Aggressive Fed

A More Aggressive Fed

On Wednesday afternoon, the bears came back to work reacting to a more aggressive Fed creating some technical damage in the charts.  With the rapid rise in bond yields, the QQQ and IWM suffered the brunt o the technical damage, while the SPY and DIA had only some price support losses at the close.  So now the question is, with this highly speculative and emotional market environment, will we ignore the Fed and rush back in to buy the dip, or will the bears start to show some teeth?

Asian markets had a rough night, closing mainly in the red, with Japan dropping 2.88%.  European markets see only red this morning, with the DAX and CAC both down more than 1% at the time of this report.  However, U.S. futures point to a mixed open ahead of trade and jobless data.  So, prepare for price volatility to remain high as we sort through yesterday's damage. 

Economic Calendar

Earnings Calendar

We have our biggest day of reports on the Thursday earnings calendar so far this year.  Notable reports include BBBY, CAG, FC, HELE, KRUS, PSMT, SCHN, & WDFC. 

News & Technicals’

Minutes from the Fed’s December meeting indicated that officials were ready to dial back policy help aggressively.  One key aspect, the central bank’s balance sheet, was the subject of extended discussion, with policymakers pointing to a reduction in bond holdings in the coming months.  Members expressed concern about inflation and said the jobs market is nearing full employment.  Stocks slid following the release while government bond yields rose.  Scammers around the world took home a record $14 billion in cryptocurrency in 2021, thanks in large part to the rise of DeFi.  Losses from crypto-related crime rose 79% from 2020.  Cryptocurrency theft rose 516% from 2020 to $3.2 billion worth of cryptocurrency.  Of this total, 72% of stolen funds were taken from DeFi protocols.  New Covid-19 variants are likely to keep emerging until the whole world is vaccinated against the virus, experts warn.  According to data, in low-income countries, only 8.5% of people have received at least one dose of a vaccine.  Experts note that the sharing of vaccinations is not just an altruistic act but a pragmatic one.  Treasury yields moved slightly higher in early Thursday trading, with the 10-year rising to 1.7281% and the 30-year trading up to 2.1210%.

Yesterday's selloff created some technical damage due to a more aggressive Fed and the rapidly rising bonds.  QQQ took the most damaging hit, with the index cutting right through the psychological support of its 50-day average as well as losing some key price supports.  IWM also had a damaging day, failing at its 50-day and dropping straight through the 200-day.  That said, the selling may have been painful for those that chased into the DIA and SPY indexes this week, but by in large, there was minor price action damage.  However, the SPY fell very close to its 50-day average, and with bond yields continuing to rise in early Thursday trading, I would not rule out a test of that level soon.  Expect volatility to remain high as this highly speculative and emotional market decides to shake off the Fed and rush back in to buy up the dip.  Today we will turn our attention to the trade and jobless numbers as we prepare for the Employment Situation number coming before the bell Friday morning. 

Trade Wisely,

Doug

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