The narrative of a Fed pivot kept the bulls inspired Wednesday despite the economic data showing the battle against inflation is not over.  Moreover, the decision of OPEC to cut production by two million barrels a day adds pressure to the inflation fight as oil and gas prices surge.  With few notable earnings reports, Jobless Claims, and several Fed speakers, we should expect another wild of price volatile as we wait for the Friday Employment Situation numbers. 

While we slept, Asian markets traded mixed in reaction to the OPEC decision.  European market markets struggle in a choppy morning session turning modestly bearish as the rally momentum fades.  As I write this report, U.S. futures have reversed overnight gains suggesting a lower open ahead of earnings and economic reports.  With 4^th quarter earnings just a week away, uncertainty remains high, so plan for the challenging price action to continue.

Economic Calendar

Earnings Calendar

Just one week before the official kick-off of 4^th quarter earnings, we have a few noteworthy stocks on the calendar today.  Notable names include ANGO, CAG, STZ, LEVI, & MKC.

News and Techniclals’

Energy analysts believe deep production cuts from OPEC+ could backfire for U.S. ally Saudi Arabia.  OPEC and non-OPEC allies, often referred to as OPEC+, agreed on Wednesday to reduce oil production by 2 million barrels per day from November.  The move is designed to spur a recovery in oil prices, which had fallen to roughly $80 a barrel from more than $120 three months ago.  However, Washington sees OPEC+’s decision as political interference and a “blow” against U.S. President Joe Biden, said Dan Yergin, vice chair of S&P Global.  Secondly, it’s seen as somehow political interfering in the U.S. election, although the cut doesn’t go into effect until November,” he said.  “There seems to be a mini battle between [Strategic Petroleum Reserve] releases in the White House and what’s going on with OPEC+,” said Bill Perkins, CEO of Skylar Capital Management. 

Analysts said Apple’s next iPhone would likely be equipped with USB-C charging rather than its proprietary Lightning system.  It comes after lawmakers in the European Parliament approved a law requiring electronics sold in the European Union to be equipped with a USB Type-C charging port by the end of 2024.  Indeed, there are rumors that Apple is exploring USB-C for the iPhone 15, which is what the next device could be called if the traditional naming convention continues.  Analysts said Apple’s change to USB-C will likely be for the global market, including the U.S., rather than just the EU. 

Ford is increasing the entry-level price of its electric F-150 Lightning pickup by $5,000 for the 2023 model year due to rising costs and supply chain issues.  As a result, the starting price of the 2023 Lightning Pro model will be $51,974 – up nearly 11% and a 30% increase from the truck’s $39,974 price in May 2021.   However, the company said the price increase would not impact current retail order holders and commercial and government customers with scheduled orders.  Treasury yields rallied slightly in early Thursday trading as inflation worries and hawkish Fed policies continue.

The wild price action continues as the hope of a Fed pivot inspires buyers to recover the Wednesday morning gap that temporarily produced gains on the day.  Unfortunately, bond yields and the dollar’s strength continue to inhibit bullish sentiment.  Add in the OPEC decision that’s quickly raising oil and gas prices and fanning the flame of inflation, thickening the dark cloud hanging over the weakening economy.  Today we get the latest read on Jobless claims and more Fed speeches for the market to process as we move toward the Friday Employment Situation report.  Plan carefully and expect the volatile uncertainties to continue.

Trade Wisely,

Doug

The fast two-day rally revived hope of a market bottom, and it certainly was a welcome change from the selling, but with FOMC unlikely to pivot, was it too much too soon?  Currencies continue fluctuating, and the bond yields ticked up early Wednesday, bringing back some uncertainty this morning.  If the bottom is indeed in, we need to wait and see proof that the institutions support a higher low and they have the willingness to break the index downtrends.  Avoid the fear of missing out on emotional trading and stick to your rules and sound technical analysis principles.

Asian markets closed mostly higher, with Hong Kong surging up 5.90% as the Shanghai index drifted lower by 0.55%.  European markets are in pullback mode this morning, seeing red across the board as PMI data points to recession.  U.S. futures are also retreating ahead of a busy morning of economic data as the dollar bounces, and bond yields tick up.  Plan for another wild day.

Economic Calendar

Earnings Calendar

On the Wednesday earnings calendar, we have six confirmed reports.  Notable reports include HELE, LW, and RPM.

News and Technicals’

Elon Musk’s revived $44 billion deal to buy Twitter sparked fresh debate over what the billionaire will do with the service if he eventually owns it.  On Tuesday, Musk tweeted that buying Twitter is an “accelerant to creating X, the everything app.” He did not provide further details.  However, musk may be hinting toward so-called “super apps,” which are popular in China and other parts of Asia and pioneered by the likes of Chinese technology giant Tencent.  Chinese app WeChat, run by Tencent, is the biggest super app in the world.  Musk previously called WeChat “great” and said there is an opportunity to create an app like that outside of China. 

OPEC+’s plans to cut oil production is a “mistake,” said U.S. Senator Chris Murphy.  “I think it is a mistake on their part.  And I think it’s time for a wholesale re-evaluation of the U.S. alliance with Saudi Arabia,” Murphy told CNBC.  “I think you’ve got to be very careful to do business with the Saudis these days,” he said.  Germany’s economy minister has accused the U.S. and other “friendly” gas supplier states of astronomical prices for their gas supplies.  He suggested some gas suppliers were profiting from the fallout of the war in Ukraine, which has sent global energy prices soaring.

The substantial two-day rally was just what the market needed to revive traders and investors tired of the consistent selling, but is it too much too soon with FOMC unlikely to pivot?  As of now, the index downtrends remain intact, as do the technical and price resistance above.  The dollar is bouncing this morning, and the treasury yields ticked up slightly in the early Wednesday trading suggesting the currency fluctuations could continue to raise market uncertainty.  Today we will find out if OPEC will cut production levels which could add inflationary pressure as winter approaches.  We will also get Mortgage Applications, ADP, Trade numbers, PMI Final, ISM Services, and Petroleum Status reports this morning.  Keep in mind the Employment Situation report Friday morning because it’s not uncommon for the price action to become light and choppy ahead of the number. 

Trade Wisely,

Doug

Happy day, the bulls returned to work on Monday, finding inspiration in the pullback of bond yields and the declining dollar.  However, it was not all sunshine and roses with the bearish ISM report and the sharply declining construction spending.  Though the relief rally was overdue, keep in mind downtrends remain intact, as well as significant overhead resistance, so the feeling the bottom may be in is premature.  Stay focused on price, and remember, the bulls still have a lot to prove before we sound the all-clear signal. 

Asian market closed mixed after a smaller than expected Australian rate hike, though the Nikkei surged nearly 3%.  European markets leap higher this morning as they celebrate the needed selling relief.  Ahead of factory orders, the JOLTS report, and a parade of Fed speakers, U.S. futures point to a huge gap up open despite the tremendous economic uncertainties.  Watch for the possibility of a pop and drop as we test the downtrend and overhead resistance levels.

Economic Calendar

Earnings Calendar

We have just four confirmed reports on Tuesday.  They are AYI, NG, SAR, and SGH.

News & Technicals’

Monetary and fiscal policies in advanced economies — including continued interest rate hikes — could push the world toward a global recession and stagnation, the UN Conference on Trade and Development (UNCTAD) said on Monday.  A global slowdown could potentially inflict worse damage than the financial crisis in 2008 and the Covid-19 shock in 2020, warned the UNCTAD in its Trade and Development Report 2022.  “We still have time to step back from the edge of recession.  Nothing is inevitable.  We must change course,” said UNCTAD Secretary-General Rebeca Grynspan.  North Korea fired a ballistic missile over Japan for the first time in five years on Tuesday, prompting a warning for residents to take cover and a temporary suspension of train operations in northern Japan.  Speaking to reporters shortly afterward, Prime Minister Fumio Kishida called North Korea’s actions “barbaric” and said the government would continue gathering and analyzing information. 

Manhattan apartment sales fell 18% in the third quarter, putting the brakes on New York’s real estate comeback.  However, the figure last fell in the fourth quarter of 2020 and marks a turnaround for the nation’s largest real estate market.  Brokers say the drop marks a return to normalcy after the artificially high sales of 2021.  There are growing fears of a housing market crash in the U.K. after a swathe of tax cuts announced by the government sent interest rate expectations soaring, driving up lending rates for homebuyers.  As a result, several banks suspended mortgage deals for new customers, and many have now returned to the market with significantly higher rates.  Oxford Economics estimates that if interest rates remain at the levels currently being offered, house prices are approximate “30% overvalued based on the affordability of mortgage payments.” 

With the U.S. dollar declining and bond yields easing slightly, the bulls finally found the inspiration to rally Monday despite the declining ISM and Construction spending numbers.  It’s a welcome relief from the short-term oversold condition of the indexes.  However, the indexes remain in downtrends, and we have yet to challenge the significant overhead resistance levels, so be careful in assuming this is an all-clear buy signal.  While yesterday’s big point move raises hope of a market bottom, we still have an inflation problem and a Fed showing no signs of pivoting.  Today we will get a reading on factory orders and the JOLTS report with another parade of Fed speakers.  With the dollar falling, keep a close eye on commodity prices that typically rally during currency weakness which could quickly add pressure to the fight against inflation.  With earnings season just nine days away, volatility is likely to remain high, especially if we continue to get downgrades and earnings warnings.

Trade Wisley,

Doug

As we begin a new quarter, inflation remains unacceptably high, and everyone wonders what will break first.  The economy or the FOMC’s hawkish stance?  Today the FOMC has called an emergency meeting.  One has to wonder if we are again on the brink of a banking or liquidity crisis.  Stay alert for price gyrations as news comes out.  The official kick-off of 4^th quarter earnings is only 10-days away, so keep an eye out for possible downgrades and warnings with the consumer-facing some difficult decisions as prices continue to rise.  The overnight reversal and intraday whipsaws will likely continue, so plan your risk carefully.

Asian markets closed mostly lower, with oil rising and the Hang Seng falling to its lowest level in 11 years.  European markets trade primarily lower this morning as Credit Suisse declines sharply.  However, as I write this report, the U.S. futures have recovered from overnight lows, pointing to another gap as another premarket pump hopes to inspire the bulls.  Watch for the possible pop and drop with so much price resistance above despite the short-term oversold condition.

Economic Calendar

Earnings Calendar

There are no confirmed earnings reports for today.

News & Technicals’

Shares of Credit Suisse plunged nearly 10% in Europe’s morning session after the Financial Times reported that the Swiss bank’s executives are talking with its major investors to reassure them amid rising concerns over the Swiss lender’s financial health.  Spreads of the bank’s credit default swaps (CDS), which provide investors with protection against financial risks such as default, rose sharply Friday.  They followed reports the Swiss lender is looking to raise capital, citing a memo from its Chief Executive Ulrich Koerner.  The U.K government reverses planned tax cuts due to currency fluctuations.  It represents a major and humiliating U-turn for new Prime Minister Liz Truss, who was insisting that she was “absolutely committed” to the cut as recently as Sunday.  She also revealed the decision was taken by Kwarteng and had not been announced to her whole cabinet. 

Markets entered a dangerous new phase in the past week, in which statistically unusual moves across asset classes are commonplace.  According to Mark Connors, former Credit Suisse global head of risk advisory, surging volatility in what are supposed to be among the world’s safest fixed income instruments could disrupt the financial system’s plumbing.  He said that could force the Fed to prop up the Treasury market.  Doing so will likely force the Fed to halt its quantitative tightening program ahead of schedule.  The other worry is that the whipsawing markets will expose the weak hands of asset managers, hedge funds, and other players who may have been overleveraged or taken on unwise risks.  As a result, margin calls and forced liquidations could further roil markets.

Monthly consumer prices grew by 3.08% and annually by 83.45%.  The domestic producer price index was up 4.78% from the previous month and a whopping 151.5% year on year.  Inflation for the country of 84 million people has soared in the last two years, particularly as Turkish President Recep Tayyip Erdogan insists on continuing to cut interest rates rather than raise them — deviating from the conventional way of controlling inflation.  “My biggest battle is against interest.  My biggest enemy is interest.  We lowered the interest rate to 12%.  Is that enough?  It is not enough.  This needs to come down further,” Erdogan said during an event in late September.

As we begin a new quarter, indexes remain in a short-term oversold condition, and as of the Friday close, the bears left all but IWM at fresh 2022 lows.  Moreover, with the official start of the 4^th quarter earnings 10-days away and the mid-term election only 35 days, there is a lot of uncertainty about what comes next.  Adding to the concern, the FOMC has called an emergency meeting for today.  Could we be on the brink of another banking or liquidity crisis?  China is also making concerning moves that may soon trigger a selloff in the dollar to stabilize the Yuan.  With so much uncertainty, traders must be ready for just about anything.  As a result, overnight reversals and news-inspired intraday reversals are likely to continue.  Watch for reports of earnings downgrades and warnings from companies of potential top or bottom line misses as consumers face some complex decisions heading into the winter.  September was challenging, but we have not seen full-on panic, so perhaps October will bring us some selling relief.

Trade Wisely,

Doug

A negative GDP, hotter than expected jobs market, layoff reports, company downgrades, and currency fluctuations are just some of the issues creating the wide-ranging chop in the indexes.  This morning we wait for the FOMC favored inflation report, the Core PCE, after learning the Eurozone hit a new 10% inflation record.  Though we are oversold in the short-term and should watch for a possible relief rally, the uncertainty of the path forward will make it difficult for the bulls to find much inspiration and gives the bears very little reason to back off.  Expect the challenging price action to continue in the days ahead with the 4^th quarter earnings season rapidly approaching.

Asian markets closed mostly lower while we slept, reacting to the SP-500 new year low.  However, with European inflation soaring to 10% and the BOE back on the QE train, the eurozone market see modest gains across the board.  U.S. futures also point to a bullish open as we wait for the Personal Income and Outlays report.  Plan for price volatility and watch out for those big point intraday whipsaws in this wide-ranging chop zone. 

Economic Calendar

Earnings Calendar

W have a very light day on the Friday earnings calendar with only one CCL with any noteworthiness. 

News & Technicals’

Eurozone inflation spikes to a record 10%, adding pressure on the ECB to act.  Moreover, the reading showed price increases broadening out from volatile food and energy prices into nearly all segments of the 19-member bloc’s economy.  Energy prices rose 40.8% year-on-year, up from 38.6% in August, followed by food, alcohol, and tobacco at 11.8%, up from 10.6% last month.  In addition, federal student loan borrowers whose loans are not held by the U.S. Department of Education will no longer be able to consolidate for forgiveness as of Thursday.  Nike’s first fiscal quarter revenue was up 4% to $12.69 billion, beating estimates.  However, Nike’s net income was down 22% to $1.5 billion.  The sneaker giant said inventory on its balance sheet was up 44% to $9.7 billion, driven by ongoing supply chain issues. 

British Prime Minister Liz Truss and Finance Minister Kwasi Kwarteng met the U.K.’s independent monetary watchdog for talks on Friday.  The talks followed a turbulent week for the U.K. economy, including a slump in the pound and gilt yields soaring.  The Senate voted 72 to 25 to pass a funding bill to avert a federal shutdown and fund government operations through mid-December.  The bill now goes to the House, where it’s expected to pass later this week.  It includes an additional $12 billion in aid for Ukraine, $1 billion in heating and utility assistance, and emergency aid for natural disasters. 

A negative GDP reading and hotter-than-expected jobless claims quickly reversed the Wednesday rally as the wide-ranging chop filled with uncertainty plagues the indexes.  While the FOMC works to reduce inflation, Congress continues to burrow and spend like drunken sailors.  This morning Europe reported a new record high of 10% inflation as we wait here in the U.S. for the FOMC favorite indicator, the Core PCE numbers, before the bell.  The downgrade of APPL put a lot of pressure on Nasdaq, and I suspect we will see more companies downgrades as we head for the 4^th quarter earnings season.  Though we remain oversold in the short-term, suggesting a relief rally is due to the pressure in bond yield, and currency fluctuations will likely keep volatility challenging in the days and weeks to come.

Trade Wisely,

Doug

Although the big bullish bounce on Wednesday raised hopes of a relief rally, the real question is, can the bulls follow through a second day, or was it just a dead cat bounce?  A lot will depend on how the market reacts to the GDP and Jobless Claims numbers before today’s bell.  Sadly the Wednesday push upward didn’t seem to translate into bullishness in Asian overnight or European markets this morning.  Keep in mind that with the uncertainty of 4th quarter earnings just around the corner, its possible we’ve entered a wide-ranging chop zone as we wait. 

Asian markets struggled to pick up on the bullish love felt in the U.S., closing the day mixed.  European markets see red across the board as the BOE intervention quickly fades.  With some name earnings reports, GDP, and Jobless Claims ahead, the U.S. futures look to take back a big chunk of yesterday’s rally at the open.  However, a lot could change depending on the reaction to the economic data.  Expect another wild morning of whipsaws and reversals.

Economic Calendar

Earnings Calendar

The Thursday calendar is a light one, with just nine confirmed reports.  Notable reports include BBBY, MU, NKE, KMX, RAD, & WOR.

News & Technicals’

Beneath all the clamor of Russia’s invasion of Ukraine and the efforts to tamp down inflation, investors are passing over a huge story in China, Jim Chanos said.  The nation faces a deepening crisis caused by multiple factors, resulting in the worst plunge in home sales since China started allowing private property sales in the late 1990s.  CNBC’s Jim Cramer said Wednesday’s rally would likely reverse course as soon as a Federal Reserve official reminds Wall Street of its hawkish stance against inflation.  “The moment some Fed-head explains the obvious, today’s gains will disappear because they’re incompatible with the Fed’s attempts to control inflation,” he said. 

Pension fund panic led to the Bank of England’s emergency intervention.  To prevent an “unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy, the FPC said it would buy gilts on “whatever scale is necessary” for a limited time.  Central to the Bank’s extraordinary announcement was panic among pension funds, with some of the bonds held within them losing around half their value in a matter of days.   Analysts are hoping that a further intervention from Westminster or the City will help assuage the market’s concerns, but until then, choppy waters are expected to persist.

The Wednesday bounce raised hopes for a relief rally, but the real question is, can it follow through for a second day?  A lot will depend on how the market reacts to the GDP and Jobless Claims numbers before the bell.  While it was nice to get some selling relief, there was no substantive improvement in any chart technicals and changes, nothing in the FOMC inflation-fighting stance.  That said, I still hope for a bit more relief to set up short trade positions, but with 4^th quarter earnings uncertainty just around the corner, we may have just set the chop range of price action while we wait.  The pullback in the U.S. dollar was a big help to the Wednesday rally, but I wouldn’t hold my breath thinking that it continues unless other countries get serious about fighting inflation. 

Trade Wisely,

Doug

Market uncertainties abound with currency gyrations, weakening economic conditions, a litany of talking head doublespeak, and geopolitical tensions.  I suspect that condition will continue today with a few earnings reports, several economic reports, and a blizzard of flip-flopping Fed speak.  A substantial bounce is not out of the question from this short-term oversold condition, but we can’t rule out the pile-on effect as data rolls out.  Whipsaws and overnight reversals are likely to keep price action challenging, so plan your risk carefully.

Asian markets closed higher with modest gains as the healthcare sector rallied.  Across the pond, European markets also trade with modest gains this morning in a choppy price action session.  Seeing treasury yields relaxing slightly, U.S. futures point to a substantial gap up ahead of several potential market-moving reports.  Hope for a relief rally but be prepared for fast-moving prices that could whipsaw in a heartbeat due to news sensitivity.

Economic Calendar

Earnings Calendar

We have a bit more activity on the earnings calendar for Tuesday, with 15 confirmed reports.  Notable reports include BB, CALM, CBRL, JBL, NEOG, PRGS, & UNFI.

News & Technicals’

The sudden sell-off in the pound and U.K. bond markets led economists to anticipate more aggressive interest rate hikes from the Bank of England.  In a series of tweets Tuesday morning, Harvard professor Summers said that although he was “very pessimistic” about the potential fallout from the “utterly irresponsible” policy announcements, he did not expect markets to capitulate so quickly.  The likening of the U.K. to an emerging market economy has recently become more prevalent among market commentators.  Speaking to CNBC’s “Squawk Box Europe” on Tuesday, Evans said he remains “cautiously optimistic” that the U.S. economy can avoid a recession — provided there are no further external shocks.  His comments come shortly after a slew of top Fed officials said they would continue to prioritize the fight against inflation, which is currently running near its highest levels since the early 1980s. 

The British pound hit an all-time low against the dollar in the early hours of Monday morning, dropping below $1.04, while the U.K. 10-year gilt yield rose to its highest level since 2008.  The announcement featured a volume of tax cuts not seen in Britain since 1972 and a return to the “trickle-down economics” promoted by the likes of Ronald Reagan and Margaret Thatcher.  However, Vasileios Gkionakis, head of European FX strategy at Citi, told CNBC on Monday that the market was demonstrating an “erosion of confidence” in the U.K. as a sovereign issuer, leading to a “textbook currency crisis.”  Bitcoin topped $20,000 on Tuesday, hitting its highest level in more than a week, but is still struggling to break out of its tight trading range.  With another U.S. Federal Reserve interest rate out the way, traders may be positioning themselves for a peak in U.S. dollar strength, which would be positive for bitcoin, one analyst said.  Bitcoin’s rally happened despite a fall in U.S. stocks, with the S&P 500 closing at its lowest level of 2022 on Monday, a potential sign the correlation between the two asset classes may be lessening.

Uncertainties abound, whipsawing the Monday markets as currencies fluctuate, and a flurry of Fed speakers and talking head doublespeak points fingers of blame though still promoting their positions.  Add in the geopolitical issues, and it’s not hard to understand why the market is a mess.  Sadly, we now look to the same people that created the mess to clean it up and get things back on track.  What could go wrong with that?  Technically speaking, the indexes are in a short-term severely oversold condition, suggesting a relief rally could soon occur.  Still, we will have to keep a close eye on the deteriorating conditions of our economy and other major economies’ stumbling blocks keeping the bears active.  Today we face a blizzard of Fed speakers as well as Durable Goods, Case-Shiller, Consumer Confidence, and New Home Sales reports.   Plan for price action to remain challenging.  If a relief rally does begin, be willing to hold thorough substantial whips in price or stand aside because the bear market is not likely finished with market-moving surprises.

Trade Wisely,

Doug

The technical situation worsened while I was hiking in South Dakota as the Dow fell below the critical psychological level of 30,000.  Although the oversold condition of the T2122 indicator suggests the odds of a relief rally are strong, the strong dollar and the weakening worldwide economy will make it challenging to raise bullish sentiment.  However, the hope that the 2022 lows of the SPY, QQQ, and IWM can inspire a defense by the bulls could provide some relief from the selling soon. 

While we slept, the Asian markets declined across the board as currencies continued to decline against the dollar’s strength.  European markets trade flat but mostly lower after the sterling fell to a record low against the dollar.  The U.S.  futures point to a bearish open though it has rallied substantially off overnight lows.  Expect price volatility, and though the overnight rally is hopeful, remember a retest of overnight lows can often occur. 

Economic Calendar

Earnings Calendar

Though we have 16 companies listed and only one confirmed report from CHG, I have to say we have no notable reports today.

News & Technicals’

Sterling’s plunge comes after last week’s announcement by the new U.K. government that it would implement tax cuts and investment incentives to boost growth.  However, critics say those economic measures will disproportionately benefit the wealthy and could see the U.K. take on high debt levels at a time of rising interest rates.  Brent crude fell below $85 a barrel Monday as recession fears weighed and the U.S. dollar surged.  Brent futures for November settlement were trading down over 1%, around $84.92 at 8 a.m. London time.  West Texas Intermediate futures also fell to trade around $77.93.  Apple on Monday said it is assembling its flagship iPhone 14 in India as the U.S. technology giant looks to shift some production away from China.  Apple’s main iPhone assembler Foxconn is manufacturing the devices at its Sriperumbudur factory on the outskirts of Chennai.   Apple has manufactured iPhones in India since 2017, but these were usually older models.  With the iPhone 14, Apple is manufacturing the latest model in its line-up at the device’s launch. 

In focusing on raising interest rates to cool inflation, central banks and governments have overlooked the importance of maintaining stable currencies, said Steve Forbes, chair of Forbes Media.  “The real cure is to stabilize the currency.  You don’t have to make people poor to conquer inflation,” he said.  The British pound briefly fell 4% to an all-time low of $1.0382 on Monday in Asia, following last week’s announcement by the new U.K. government that it would implement tax cuts and investment incentives to boost growth.  Treasury yields moved higher early Monday, with the 12- month at 4.07%, the 2-year at 4.29%, the 5-year at 4.08%, the 10-year at3.77%, and the 30-year at 3.65%.

Having taken off Thursday and Friday for some time in nature to heal the soul, the technical situation continued to worsen as worldwide economies slowed.  As a result, currencies fluctuated substantially overnight as the U.S. dollar continued to strengthen and the 2-year bond yield hit a fresh 15-year high early Monday morning.  The Dow fell below a critical psychological level of 30,000 and set new 2022 lows.  If there is some good news, the T2122 indicator indicates a relief bounce could occur at any time due to its oversold condition.  Also hopeful for the bulls is the 2022 low-price support of SPY, QQQ, and IWM, which may still see a bullish defense.  Though the odd of a relief rally is good, I suspect it may only serve to set up more short trading with a challenging 3^rd quarter earnings season just around the corner.

Trade Wisely,

Doug

The hope for a follow-up bullish move after Monday’s rally fizzled quickly as the bears went back to work as uncertainty about the next move of the FOMC weighs.  Though the wait is nearly over, we must first deal with Existing Home Sales and the Petroleum Status report.   Plan for volatility at the rate increase announcement.  However, the real fireworks could begin during the press conference, where the market hopes to hear the committee will pivot, backing off on their inflation fight.  Plan for big price swings with the market hanging on each word of Powell’s comments. 

Asian markets struggled overnight after the Putin speech that shot up oil prices by nearly 3%.  However, Europe is trading modestly green across the board, with eyes on the FOMC after deciding to nationalize  Uniper energy.  U.S. futures are trying to bounce ahead of housing and oil data again, with the big show beginning at 2 PM eastern.  This afternoon, plan for some big price swings during the chairman’s press conference. 

Economic Calendar

Earnings Calendar

We have a bit more activity on the earning calendar today, focusing on builders after the bell.  Notable reports include GIS, FUL, KBH, LEN, SCS & TCOM.

News & Technicals’

President Putin has ordered the partial mobilization of the Russian population, including ordering military reservists into active service and a boost to weapons production.  In a pre-recorded announcement, Putin said the West “wants to destroy our country.”  He claimed the West had tried to “turn Ukraine’s people into cannon fodder,” in comments translated by Reuters.  Wells Fargo makes a case for a 150 basis point hike at today’s FOMC meeting.  Michael Schumacher suggests the Fed is raising rates too slowly and should seriously consider a 150-point hike moving it closer to the end-of-year target of plus 4%.  Germany nationalizes energy giant Uniper, with the state now buying out the 56% stake of Finland’s Fortum for 500 million euros.  The British pound hit a fresh 37-year low against the dollar last week amid fears for the economy’s health, as the country’s cost-of-living crisis begins to weigh on activity.  The Monetary Policy Committee will announce its latest decision on Thursday, with analysts divided over whether to expect a hike to interest rates of 50 or 75 basis points.  Inflation expectations have shifted in light of the announcement of new energy cost measures from new Prime Minister Liz Truss’s government. 

The Asian Development Bank now sees growth among emerging Asian economies of 4.3% in 2022 and 4.9% in 2023.  The ADB expects the rest of developing Asia, excluding China, to grow by 5.3% in both 2022 and 2023, while it now expects China to grow by 3.3% in 2022, lower than revised forecasts released in July.  The report said this would be the first time in more than three decades that the rest of developing Asia will grow faster than China.  Treasury yields dipped slightly early Wednesday, with the 12-month at 3.97%, the 2-year at 3.95%, the 5-year at 3.72%, the 10-year at 3,53%, and the 30-year at 3.54%. 

Monday’s rally raised to begin a relief rally quickly reversed Tuesday morning with the bears returning to work, pushing the index to a slightly lower low before bouncing again in the late afternoon session.  The wide-ranging chop is undoubtedly frustrating but not that big of a surprise considering the gravity of today’s Fed decision.  An increase of 75 basis points is largely expected, but the market hopes to see signs that the committee will soon back off its aggressive stance and capitulate on inflation.  As a result, expect price volatility at the 2 PM eastern decision, but the fundamental uncertainty could happen during Powell’s press conference.  However, before that, we will have to deal with an Existing Home Sales report that consensus expects to decline and a Petroleum status report.  Experienced day traders will likely have the upper hand in a day where just about anything is possible.  Buckle up the fun is about to begin!

Trade Wisely,

Doug

Institutional program trading triggered a sudden and sharp end-of-day rally, leaving behind hopeful bullish engulfing candles in an otherwise frustratingly choppy day.  However, the uncertainty is understandable, with a sharply declining housing market index number and the pending FOMC rate decision weighing on investors’ minds.  Tuesday will likely see much of the same with the Fed meeting beginning today and a Housing Starts and Permits number out before the bell.  Plan for lots of chop and quick intraday whipsaws inspired by institutional algorithmic trading.

Asian markets traded in a choppy session but ended the day higher as China kept the benchmark lending rate unchanged as core inflation in Japan grew at the fastest pace in eight years.  European markets trade modestly red across the board this morning in a choppy session.  U.S futures look to take back some of Monday’s gains at the open at the September FOMC meeting begins.  Markets hate uncertainty, so plan for another choppy price action day as we wait.

Economic Calendar

Earnings Calendar

We have just three confirmed earnings reports today, and they are not particularly notable, but they are APOG, ACB, & SFIX.

News & Technicals’

The Riksbank said monetary policy would need to be tightened further to bring inflation back to its 2% target and forecast further rises in interest rates over the next six months.  “The development of inflation going forward is still difficult to assess, and the Riksbank will adapt monetary policy as necessary to ensure that inflation is brought back to the target,” it said.  Ether has fallen around 15%, while bitcoin has dropped 3% since the Ethereum network underwent a huge upgrade called the merge.  Ahead of the network upgrade, the price of ether roughly doubled from the year’s lows in June, far outpacing bitcoin’s gains.  Investors have taken profit as the merge was primarily priced in, while concerns about further interest rate rises from the U.S. Federal Reserve have hit risk assets across the board.  Ford Motor on Monday warned investors that the company expects to incur an extra $1 billion in costs during the third quarter due to inflation and supply chain issues.  Ford said supply problems have resulted in parts shortages affecting roughly 40,000 to 45,000 vehicles, primarily high-margin trucks, and SUVs that haven’t been able to reach dealers.   However, the automaker reaffirmed its full-year guidance, saying it expects to deliver the vehicles to dealers in the fourth quarter. 

A strengthening Hurricane Fiona barreled toward the Turks and Caicos Islands on Tuesday as it threatened to strengthen into a Category 3 storm, prompting the government to impose a curfew.  Forecasters said Fiona could become a major hurricane late Monday or Tuesday when it was expected to pass near the British territory.  The intensifying storm kept dropping copious rain over the Dominican Republic and Puerto Rico.  The Bank of Japan reportedly conducted a foreign exchange check – a move seen as a precursor for formal intervention.  However, HSBC says BOJ will prioritize maintaining its yield curve control policy instead.  UBS says chances of shifting away from its current monetary stance are especially low under BOJ governor Kuroda.  The 2-year treasury yield reached a 15-year high in early Tuesday trading at 3.97%, with the 5-year at 3.73%, the 10-year at 3.45%, and the 30-year at 3.55%.

Monday’s price action was a not-so-surprising choppy session until a sudden surge of institutional program trading triggered a sharp end-of-day rally, leaving behind some hopeful bullish engulfing candles.  Unfortunately, the surge in buying could not breach overhead resistance levels, and the uncertainty of the pending FOMC rate decision weighs on investors.  The Housing index numbers disappointed, coming in substantially under consensus estimates, and continue to show a dramatic slowdown in the industry.  Today begins the FOMC meeting, and we will get a reading on Housing Starts and Permits before the bell with a 20-year bond auction later in the day.  Treasury yields continue to rise, fanning the flames of recession, with the 2-year hitting a fifteen-year high earlier this morning.  Expect price action to remain challenging as we wait on the rate decision amidst weakening economic conditions worldwide and right here in our backyard. 

Trade Wisely,

Doug