Bulls Continue Higher

Bulls Continue Higher

The bulls continue higher with a mighty shove, setting new records despite declining ISM and Construction Spending numbers.  I guess the message is don’t bother me with the details of the economy because I want to buy, buy, buy no matter what!  Now the market will have to grapple with the FOMC and the possibility of a taper in the easy money policies and jobs data the rest of the week.  With emotional speculation running very high, expect challenging volatility, particularly if this bull run stumbles.  So plan your risk carefully as we continue to stretch the indexes.

Asian markets traded mostly lower as real estate stocks retreated with growing default fears and China slipping into stagflation.  European markets trade mainly higher as they wait on the decision from the FOMC.  The U.S. futures indicate an uncharacteristically flat open this morning, facing a big day of earnings events and the beginning of the central bank meeting. 

Economic Calendar

Earnings Calendar

On the Tuesday earnings calendar, we have a busy day with 190 companies listed, but a large number are unconfirmed.  Notable reports include PFE, ATVI, AKAM, AFG, AWK, AMGN, APO, ARNC, BHC, BLMN, BP, CZR, CRK, COP, COUR, CMI, DVN, APPS, DD, ETN, EIX, EL, EXAS, EXPD, RACE, GRNC, GNW, GRBK, HSIC, HLF, IEP, IDDXX, KKR, LEA, LPSN, LPX, LYFY, MMP, MPC, MLM, MTCH, MDLZ, PACB, RL, SEE, SEDG, SRC, SMCI, TMUS, UAA, UNM, WU, XPO, & Z.

News & Technicals’

ON MONDAY NIGHT, Tesla CEO Elon Musk said that his electric vehicle company has yet to sign a contract with rental car company Hertz.  Tesla hit a $1 trillion market cap for the first time a week ago after Hertz announced it would grow its fleet of battery-electric vehicles with “an initial order of 100,000 Tesla’s by the end of 2022.” In addition, the EPA will propose rules to plug methane gas leaks at hundreds of thousands of oil and gas wells in the U.S.  The agency’s measures will strengthen current regulations on new oil and gas wells and impose new requirements for existing wells that previously escaped methane regulations.  According to senior Biden administration officials, President Joe Biden will formally announce the proposals during the second day of the COP26 climate summit in Glasgow, Scotland.  According to its amended prospectus filed Monday, electric vehicle start-up Rivian Automotive is seeking a market valuation of as much as $54.6 billion in its upcoming initial public offering.  Rivian said it is offering 135 million shares priced between $57 and $62, with an option for underwriters to purchase up to 20.25 million additional shares.  Amazon and Ford back Rivian. Treasury yield trade mixed this morning before the beginning of the FOMC meeting, with the 10-year falling to 1.5611% and the 30-year up slightly to 1.9770% in early trading. 

The bulls continue higher, setting records in the DIA, SPY, and QQQ, with the IWM surging but finishing just short of a breakout.  The T2122 indicator was nearly pegged at the top of the range heading into the close on Monday, suggesting a short-term extreme overbought condition.  The VIX ended the day slightly higher, which is odd considering the wild-eyed bullishness displayed in the indexes despite the decline in the ISM and construction spending numbers.  The market will now turn its attention to the beginning of the FOMC meeting and the possibility of easy money policies tapering at the announcement Wednesday afternoon.  The market will also begin digesting a slew of jobs data with the ADP Wednesday morning, Jobless Claims Thursday, and the Employment Situation number Friday.  Combined with a considerable number of earnings reports, expect price volatility in this highly emotional and speculative bull run.

Trade Wisely,

Doug

New Records

New Records

The bulls powered through to set more new records to end October after disappointing tech earnings results due to supply chain disruptions.  Not to be outdone, the bulls are pushing for yet another gap up open November trading on a high note.  Index charts remain quite extended, but at this point, nothing seems to dissuade this relentless bull.  However, when gapping to new records, we can not rule out the possibility of a pop and dorp pattern, so be careful chasing in at the open, making sure we see some follow-through buying. 

Overnight with the threat of stagflation, Asian markets traded mixed as the Nikkei soared 2.61%.  Across the pond, European markets kick off the month decidedly bullish across the board.  Ahead of earnings and manufacturing data, the bulls seem unstoppable this morning, pointing to a substantial gap and new records at the open. 

Economic Calendar

Earnings Calendar

On the Monday earnings calendar, we have 87 companies listed with several unconfirmed reports.  Notable reports include ADTN, ALX, ANET, CAR, BCC, CRUS, CLX, CVI, FANG, FN, BEN, GAIA, GXO, IPI, L, MCK, MOS, NXPI, ON, OTTR, PCG, PSA< O, RYAAY, SBAC, SPG, SKT, TTM, RIG, VNO, WFRD, & WMB.

News & Technicals’

Barclays CEO Jes Staley will stand down following an investigation into his relationship with Jeffrey Epstein.  C.S. Venkatakrishnan (known as Venkat), currently head of global markets at Barclays, is set to take over as chief executive immediately.  The bank said the investigation had not found that Staley “saw, or was aware of, any of Mr. Epstein’s alleged crimes.”  In October, China’s factory activity contracted more than expected, shrinking for a second month, an official survey released on Sunday showed.  The latest October manufacturing data shows low production and high price inflation, economists say.  “A worrying sign is the passthrough of inflation from input prices to output prices. The input price inflation has been high for many months by now, driven by the rising commodity prices,” Zhang Zhiwei, chief economist at Pinpoint Asset Management, wrote.  Treasury yields begin November higher, with the 10-year trading at 1.5938% and the 30-year rising to 1.9638% in early trading Monday morning.

Although the DIA, SPY, and QQQ continue to appear extended, the disappointing tech earnings only fanned the flames of buying, setting new record highs on Friday.  With another busy of earnings and the whispers of FOMC taper in the air, can we expect more of the same?  Futures this morning suggest yes with a gap up to more records!  That said, we can’t rule out the possibility of a pop and drop coming into play.  According to analyst's estimates, ISM may decline slightly with the report at 10 AM Eastern.  However, with the decline in durable goods, GDP, and personal incomes not slowing the buying frenzy, a manufacturing decline might just easily get shrugged off.  We can be sure that the price action will likely remain challenging with lots of earnings-fueled gaps and whipsaws.

Trade Wisely,

Doug

Treasury Yield Su

Treasury Yield

AMZN and APPL disappoint, Eurozone inflation spikes to a 13 year high, and U.S. Treasury yield surged in early Friday trading, providing the first twinge of uncertainty in this robust earnings fueled rally.  Though signs are emerging of a global economic slowdown, I would not expect the bulls to give up easily.  I would not be surprised to see some end of window dressing to close the October strong.  Next week could bring uncertainty as we wait for the FOMC taper decision and find out if they will begin fighting inflation.  Should the bears gain control today, look for a test of price support levels that are unfortunately painfully lower.

Asian markets close the day mixed as Apple supplier stocks suffered losses after earnings.  European markets trade red across the board this morning, with inflation hitting the highest level since 2008.  U.S. futures point to modest declines this morning ahead of earnings data and a reading on Personal incomes and Consumer Sentiment. 

Economic Calendar

Earnings Calendar

We get a little break in the rapid pace of earnings this week with 100 companies listed on the calendar.  Notable reports include ABBV, AON, B, BAH, CHTR, CVX, FTS, LHX, LYB, NWL, PSX, RCL, SJR, WPC, GWW, WY, & WETF.

News and Technicals’

Treasury Secretary Janet Yellen told CNBC on Friday that the administration’s infrastructure spending proposal will lower inflation when it is increasing rapidly.  Speaking from Rome, she insisted that “what this package will do is lower some of the most important costs, what they pay for health care, for child care. So it’s anti-inflationary in that sense as well.”  Her remarks come with growth slowing and inflation rising, mainly due to major supply chain issues that she expects to be resolved.  However, President Joe Biden unveiled a $1.75 trillion framework for his signature climate and social spending bill.  Initial signs indicate that neither progressives in the House nor three key senators are ready to commit to backing the plan in its current form. Initial signs indicate that neither progressives in the House nor three key senators are ready to commit to backing the plan in its current form.  The name change, which was announced at the Facebook Connect augmented and virtual reality conference, reflects the company’s growing ambitions beyond social media.  The name change, which was announced at the Facebook Connect augmented and virtual reality conference, reflects the company’s growing ambitions beyond social media.  Headline inflation on Friday came in at 4.1% for this month, according to preliminary data from Europe’s statistics office Eurostat. This was the highest level since July 2008, according to Reuters data, and was ahead of a consensus forecast of 3.7%. September’s figure had come in at 3.4%.

The 10-year Treasury yield surged three basis points to 1.6049%, and the 30-year jumped more than four basis points to 2.0076% in early Friday trading.  Disappointing results from AMZN and APPL seem to have dampened the earnings session euphoria slightly, but with today being the last trading day of October, I would not expect the bulls to give up this bull run easily.  I would not be surprised to see a little end-of-month window dressing to close the month strong.  However, should the bears gain the upper hand, selling could come in strong with price support levels painfully lower.  Next week we will turn our attention to inflation and what the FOMC plans to combat the impacts.  To taper or not to taper is the question and how the market might react to that news.  With the Eurozone facing its highest inflationary rate since 2008 and the Chinese economy struggling, clues are developing a global market slowdown. Again, I’m not predicting a selloff is coming, but we should prepare for the possibility after the extreme rally.

Trade Wisely,

Doug

GDP Report

GDP Report

With a massive day of earnings, Treasury yields are rebounding slightly ahead of the GDP report that economists expect to decline sharply over the prior month. In addition, China’s real estate crisis seems to be getting worse with a 4th developer default and reports that their economy could slide into stagflation.  However, with the palpable anticipation of AAPL and AMZN earnings after the bell, we could easily shrug all that off as the bulls keep running.  The party was incredible, but let's hope theirs not a hangover just around the corner!

Asian markets had a bearish night closing in the red across the board, with the Nikkei leading the way after the Bank of Japan holds steady on monetary policy.  European markets trade mixed this morning as they wait on a rate decision from the ECB.  However, U.S. futures press for a bullish open ahead of significant tech earnings, GDP, and Jobless data.  So prepare for another hectic day of silly season speculation.

Economic Calendar

Earnings Calendar

Thursday is our busiest day of the week, with nearly 225 companies reporting.  Notable reports include AMZN, AAPL, FLWS, MO, ABEV, AMT, BUD, BAX, CARR, CAT, CMCSA, DVA, DXCM, EGO, FE, GLPI, GILD, HSY, HTZZ, ITW, ICE, KDP, LH, TREE, LEN, MA, MPW, MRK, MDP, MSTR, TAP, NEM, NOK, NOC, ORI, OSTK, PBR, RLGY, RSG, SNY, SGEN, SHOP, SIRI, STAG, SBUX, TROW, TAK, TXRH, X, VALE, VRSN, WST, WDC, YUM, & ZEN.

New & Technicals'

Ford nearly doubled Wall Street’s earnings expectations and slightly beat revenue projections for the third quarter.  The results led the automaker to increase its annual guidance for the second time this year.  Ford said increased availability of semiconductor chips and higher vehicle shipments in the third quarter enabled it to post higher-than-expected results.  The Anglo-Dutch company posted adjusted earnings of $4.1 billion for the three months through to the end of September. Compared with $955 million over the same period a year earlier and $5.5 billion for the second quarter of 2021.  Analysts had expected third-quarter adjusted earnings to come in at almost $6 billion, according to Refinitiv.  President Joe Biden has made last-minute plans to attend a House Democratic caucus meeting on Thursday morning, CNBC confirmed late Wednesday.  Biden plans to personally appeal to the party’s progressives to vote for the stalled infrastructure bill already passed the Senate.  The risk of stagflation is “very real” in China over the next few quarters, said Charlene Chu, senior analyst for China macro-financial at Autonomous Research.  A high producer price index and power crunch have made it difficult for Beijing to stimulate the economy aggressively, said Chu. In addition, the slowdown in the real estate sector has “very severely” hit China’s economic growth, but confidence in the primary property market is not yet collapsing, she said.

Treasury yields are edging slightly higher this morning ahead of the GDP report that analysts suggest could decline sharply to 2.7% vs. the 6.7% reading just one month ago. As a result, the 10-year rose to 1.55%, and the 30-year rallied to 1.9527%.  The Nasdaq rallied strongly yesterday to briefly touch a new record pulling back to leave the second shooting star pattern behind in as many days.  However, we have a massive day of earnings that is likely to keep the bull's fire burning with the highly anticipated reports from AAPL and AMZN after the bell.  That said, we first have to make it through GDP, and Jobless Claims data, but with the wild earnings fervor going on this season, we could just ignore them like the declining Durable Goods from yesterday.  Once again, be careful chasing extended stocks and don’t rule out a continued pullback in the DIA and IWM. 

Trade Wisely,

Doug

New Records

record highs

In anticipation of strong big tech earnings, the DIA and SPY set new records yesterday before pulling back as we approached the close.  That left behind possible topping candle patterns, but with all the earnings energy coming our way in the next couple of days, anything is possible.  That said, a rest or minor profit-taking pullback to test price support seems to grow in probability from this extended condition in the indexes.  Traders will also have to grapple with the Durable Good data before the open that analysts suggest may come in negative. 

Overnight Asian markets closed the day mostly lower, with Hong Kong leading the way down 1.57%.  This morning, European markets trade in the red across the board with modest losses keeping an eye on the UK budget debate.  Facing another massive day of earnings and economic data, U.S. futures currently point to modest declines.  So buckle up; it could be another wild earnings season adventure.

Economic Calendar

Earnings Calendar

On the Wednesday earnings calendar, we have a busy day with 194 companies listed.  Notable reports include AFL, AEM, ALGT, NLY, ADP, AVB, BA, BOOT, BSX, BMY< BG, CINF, KO, CDE, DB, DRE, EBAY, EXR, FISV, F, GRMN, GD, GM, GSX, HOG, HLT, IP, KHC, LC, MAS, ORLY, PPC, RJF, R, NOW, STX, SF, TDOC, TWLO, VICI, WH, XLNX, YNDX, & YUMC. 

News & Technicals’

Alphabet topped analysts' expectations on the top and bottom lines. However, CFO Ruth Porat said Apple’s privacy changes had a “modest impact on YouTube revenues.” As a result, the company’s shares were little changed after reporting.  Microsoft’s Azure revenue growth slowed slightly in the quarter, although it accelerated from the prior quarter on a constant-currency basis. In addition, PC supply constraints cut into sales of Windows to device makers.  Third-quarter transaction-based revenue totaled $267 million, with only $51 million coming from cryptocurrency trading. Revenue from crypto trading totaled $233 million in the second quarter.  Robinhood said that, barring any change in the market environment, the headwinds that dragged down last quarter would persist into the end of the year.  Senate Democrats on Wednesday unveiled a new billionaires’ tax proposal, an entirely new entry in the tax code designed to help pay for President Joe Biden’s sweeping domestic policy package and edge his party closer to a comprehensive agreement.  The proposed tax would hit the gains of those with more than $1 billion in assets or incomes of more than $100 million a year, and it could begin to shore up the big social services and climate change plan Biden is racing to finish before departing this week for global summits.

The SPY and DIA found themselves trading at new records yesterday but struggled to hold intraday highs as we moved toward the close and heavily anticipated giant tech reports.  The pullback slightly relieved the short-term overbought condition in the T2122 indicator as the VIX rose slightly off intraday lows.  Today, we ramp up the number of earnings reports and have the potential market-moving Durable Goods report to digest.  Analysts expect a -0.9 reading falling from the prior report of 1.8%.  International Trade data will follow that as well as the Petroleum Status.  Indexes remain in a very extended condition adding danger to those entering positions, so plan your risk carefully.  Remember, healthy price action commonly tests price supports, and the current rally has left little support behind and lots of open gaps in the process. 

Trade Wisely,

Doug

Gravity-Defying Winning Streak

Gravity-Defying Winning Streak

The gravity-defying winning streak continues as the fear of missing out intensives, so does the real risk to traders trying to enter with indexes so extended in the short term.  Fed taper, inflation, energy prices, supply chain impacts, P/E ratios, market internals, and even the chart technicals seem to be of no concern at the moment. However, the more we extend, the greater the risk of a substantial pullback, so be prepared.  I challenge you to take off those rose-colored glasses and assess the risks before entering new positions.   

Asian markets traded mixed overnight even as the Nikkei surged 1.77% as worries of property taxes pushed Hong Kong lower.  However, European markets see nothing but green this morning, fueled by earnings optimism.  Ahead of a huge day of earnings, housing, and consumer confidence data U. S. futures point to new record highs in the SPY and DIA at the open. 

Economic Calendar

Earnings Calendar

On the Tuesday earnings calendar, we step up tech earnings with nearly 100 companies expected to report.   Notable reports include AMD, GOOGL, TWTR, MSFT, MMM, AAN, AMP, ADM, ARCC, BYD, CAJ, COF, CNC, CB, CIT, GLW, CLR, ECL, LLY, EQR, ESS, FFIV, GE, HAS, IVZ, JBLU, JNPR, LOGI, NAVI, PNR, PHM, RTX, HOOD, SPGI, SHW, SSTK, TER, TXN, TRU, UBS, UPS, V, WM, & XRX.

News & Technicals’

Facebook shares rose in extended trading Monday after the company reported better-than-expected third-quarter earnings while revenue missed estimates. In addition, the company announced its plans to break out its Facebook Reality Labs into its reporting segment starting in the fourth quarter. As a result, Facebook said it expects fourth-quarter revenue of $31.5 billion to $34 billion.  Democrats are making some hard choices about their signature spending plan to satisfy key moderates in the Senate, slashing the topline cost from $3.5 trillion to between $1.5 and $2 trillion.  Several of Biden’s campaign promises have been abandoned altogether, such as providing free community college and instituting a clean electricity standard with penalties for utilities that don’t comply.  Other programs that were initially permanent will instead be set to expire in a year or two, like the expanded Child Tax Credit and expanded Medicaid.  According to economists, shipping backups at big U.S. ports are not likely to resolve themselves until well into 2022.  Goldman Sachs said that the problems should lessen after the holidays and Lunar New Year as container traffic backs off.  Companies have been left to find ways to keep their products moving amid the supply chain disruptions.  Treasury yields dipped slightly in early Tuesday trading, with the 10-year trading at 1.63.17% and the 30-year falling to 2.0783%.

The bulls continue to run higher in a gravity-defying winning streak that at this point shows no signs of stopping.  Inflation and supply chain issues seem to be of no concern.  A Fed taper and now the prospect of 2 potential interest rate increases next year of no consequence as traders rush to add risk. A rapidly deteriorating China economy and a growing number of foreclosures in the U.S. we ignore. The fear of missing out is so intense that even the charts' technicals and the internal indicators are rendered essentially useless.  What does that mean?  Could this be the preamble to the classic blowoff top forming?  It is very reminiscent of the last rush into stocks in late 1999, where just like today, P/E ratios were wholly ignored.  How long can this last?  Your guess is as good as mine but enjoy the ride as long as it lasts because there could be a reckoning at the end of it.  At the risk of sounding like a broken record, I will once again caution traders to be cautious chasing already stocks.  That said, whatever you trade, make sure you have considered the risk carefully because this kind of rally can produce some painful reversals overnight and big intraday whipsaws. 

Trade Wisley,

Doug

Typical Protocol of Late

Typical Protocol

Futures markets opened traded decidedly bearish yesterday afternoon but, following the typical protocol of late speculation on earnings, now boasts a bullish open.  Nearly a 3rd of the Dow and SP-500 stock will report this so so get ready for a wild week of emotion-driven price volatility as markets react.  With the disappoints delivered by IBM, INTC & SNAP, and the other big tech being bid up into their reports, there is a significant risk should they stumble. So plan your risk carefully and avoid chasing stocks with the fear of missing out.

Asian market traded modestly higher with only the Nikkei seeing red on the day with HSBC earnings beat setting the mood.  Across the pond, European markets trade mixed with modest gains and losses with a big day data ahead. Finally, U.S. futures have recovered sharply off of overnight lows to suggest a modestly bullish open ahead of a massive week of earnings data and nothing of consequence on the economic calendar for today. 

Economic Calendar

Earnings Calendar

We have a big week of earnings beginning this week with more than 70 companies listed on the calendar.  Notable reports include

News & Technicals’

House Speaker Nancy Pelosi said Sunday that Democrats are close to finalizing an agreement on the social safety net plan that would allow the bipartisan infrastructure bill to move forward.  “We have 90% of the bill agreed to and written; we just have some of the last decisions to be made,” Pelosi said on CNN’s “State of the Union.”  Twitter co-founder and crypto advocate Jack Dorsey weighed in Friday on escalating inflation in the U.S., saying things will get considerably worse.  “It will happen in the U.S. soon, and so the world,” he tweeted.  More than 47 million Pfizer vaccine recipients who received both shots at least six months ago became eligible for a booster Friday. More than 39.1 million Moderna vaccine recipients who received both shots at least six months ago became eligible for a booster Friday.  The CDC adopted a slightly different criterion for J&J’s one-shot Covid vaccine, making almost 13 million recipients immediately eligible.  U.S. Treasury yields ticked higher Monday morning, with the 10-year topping the 1.66% mark and the 30-year rising to 2.1084%.

Futures markets opened on the bearish side, but following the typical protocol of late, they have rallied back into the green in anticipation of earnings results.  With nearly a 3rd of the SP-500 and Dow expected to report this week, traders should prepare for a significant dose of volatility.  We have experienced a powerful buy the dip rally fueled by tremendous earnings speculation in the last couple of weeks.  As a result, the technicals of the charts have vastly improved but so has the risk to the retail traders feeling the fear of missing out.  This season we have seen some big winners, and dramatic earnings losers bid up into the report.  Consider this rick carefully should you choose to trade high-flying stocks nearing a report.  That said, get ready for a wild week of price action that could set new records or start the next correction. 

Trade Wisely,

Doug

SP-500’s Turn to Touch the Sky

Touch the Sky

With tech stocks stretching higher, it was the SP-500’s turn to touch the sky, setting a new record-extending the index into seven straight days of gains.  The earnings miss from big blue briefly sent the Dow lower only to recover by the end of the day as the ravenous bulls continue to buy, buy, buy! Although the INTC and SNAP point sharply lower after disappointing earnings, the U.S. futures suggest new records may be set at today’s open.  Can we extend the party as we head into the weekend?  Your guess is as good as mine, but I would be more of a profit taker today rather than a buyer.

Asian markets closed mixed as Evergreade made a bond payment in the grace period to avert default.  European indexes see nothing but green across the board this morning as Chinese property fears temporarily subside.  Though somewhat muted, U.S. futures point to a bullish open in the Dow and SP-500, while the QQQ looks slightly lower after rallying off overnight lows. 

Economic Calendar

Earnings Calendar

We have a slightly lighter day on the Friday earnings calendar, with 37 companies listed. So let’s call it the calm before the next week's storm of giant tech reports.  Notable reports include AXP, SAM, CLF, HCA, HON, RF, SLB, STX, & VFC.

New & Technicals’

The U.K. is seeing rampant Covid infections and a slowly increasing number of hospitalizations and deaths.  The warnings come just as government officials have insisted that more restrictions on public life are not yet necessary.  Making matters potentially worse, the U.K. is also monitoring a mutation of the delta variant.  Evergrande has remitted the funds for a required interest payment due Sept. 23 — ahead of a 30-day grace period that ends tomorrow, according to the Chinese state media Securities Times.  The $83.5 million interest payment on Evergrande’s March 2022 offshore bond had been closely watched by investors ever since the indebted property developer warned twice in September that it may default.  Analysts say any easing by the People’s Bank of China may not come in overt moves, significantly as the U.S. tightens monetary policy. In addition, the PBOC needs to support a slowing economy while keeping inflation in check.  On Thursday, Snap reported its third-quarter earnings, missing revenue expectations after Apple’s iPhone privacy changes disrupted its advertising business.  The company also warned that global supply chain interruptions and labor shortages reduce the “short-term appetite to generate additional customer demand through advertising.”  The 10-year Treasury yield traded higher to 1.6846%, and the 30-year fell slightly to 2.1257% in early Friday trading.

It was the SP-500’s turn to touch the sky, setting a new record as the bulls continued to buy up tech in anticipation of earnings.  Unfortuntually, disappointing results from INTC and SNAP after the bell yesterday have the stock indicated to open sharply lower this morning.  Other digital ad stocks are also taking a hit this morning as a result and adding a bit of uncertainty as we move next week's big tech earnings bonanza.  That said, the ravenous bulls at this point seem undeterred, with U.S. futures pointing toward a new record open in the DIA and SPY.  No price seems too high as we extend this bullish run keeping the T2122 indicator pegged in a short-term overbought condition.  Today we turn our attention toward PMI with a lighter day of earnings reports.  With the tech giants slated to report next week, the anticipation is very high, and it seems to me the risk is even higher with such elevated P/E ratios. 

Trade Wisely,

Doug

6th Straight Day of Gains

6th Straight Day of Gains

As the index stretch higher with its 6th straight day of gains, the Dow briefly touched the rarefied air of new highs before pulling back slightly, heading into the close.  Will the bulls find the inspiration to keep the pedal to the metal with a jam-packed earnings calendar, jobless number, manufacturing, and housing data?  Perhaps, but the futures currently suggest a profit-taking pullback could begin.  Unfortunately, price supports are substantially lower, so it could prove a bit painful for those buying late in the rally if selling picks up. As a result, expect price volatility to remain challenging. 

During the night, Asian markets traded mixed with Evergrande impacts back on the minds of traders.  European markets see modest losses across the board this morning as they monitor China's rapidly deteriorating real estate situation.  Currently, U.S. futures point to a lower open with a busy day of data ahead and bonds on the rise.  Get ready. It could prove to be a bumpy ride this morning.

Economic Calendar

Earnings Calendar

We have a busy day this Thursday on the earnings calendar with more than 75 companies listed.  Notable reports include ABB, ALK, ALLY, AAL, T, AN, BCS, BX, BJRI, CMG, CROX, DHR, FCX, GPC, INTC, KEY, MMC, MAT, NUE, POOL, DGX, SAP, SCHN, SNAP, SNA, LUV, SIVB, TSCO, UNP, VLO, & WHR.

News and Technical’s

Heavily indebted, Evergrande was in talks earlier this month to sell part of its services unit to Hopson Development Holdings, its smaller rival. However, Hopson said Wednesday that talks fell through to purchase just over half of shares issued by Evergrande Property Services.  The collapse of the Hopson deal comes as Evergrande faces the end of a 30-day grace period on Saturday for a closely watched $83 million interest payment to investors in an offshore U.S. dollar-denominated bond.  As a result, China’s real estate sector has to be “substantially smaller” to keep the overall economy healthy and stable, said Li Gan, an economics professor at Texas A&M University.  “We have too big of a risk in the sector. We built too much housing, so the stabilization first has to come [from] trimming the sector,” said Gan.

Additionally, Gan estimated that about 20% of China’s housing stock is left vacant, yet developers continue to build millions of new units each year.  The Food and Drug Administration on Wednesday authorized Covid vaccine booster shots made by Johnson & Johnson and Moderna, another critical step in distributing the extra doses in the U.S.  Americans will also be allowed to “mix and match” vaccines, getting a booster shot from a different drugmaker than the one that made their initial doses.  Treasury yields traded slightly higher in early price action as the 10-year held above 1.649% and the 30-year climbed to 2.118%.

The bulls inked their 6th straight day of gains, briefly touching a new record high with earnings enthusiasm overcomes inflation and supply chain worries. However, chart technicals are flashing a short-term overbought condition and the price action extension over the last six days of trading adds significant risk to traders entering late-stage positions.  That said, we have our biggest day of earnings data so far this season that could keep the party going if the bulls continue to find inspiration.  Although China is trying to convince the markets that the Evergrande situation is contained and a one-off event, real estate prices are plunging, reminiscent of the 2008 U.S.-led financial crisis.  Keep an eye on this as it could quickly become a spreading market contagion.  Besides a busy day of earnings, we will get the latest reading on Jobless Claims, Manufacturing data, and Existing Home Sales data to digest this morning.  Currently, futures point to a lower open, but price supports and open gaps could create a painful pullback if selling picks up. So buckle up, and let’s get ready to rumble!

Trade Wisely,

Doug

Energized by Earnings

Energized by earnings, the bulls continue to march toward resistance highs and possible new records if the momentum is maintained.  That said, there is a substantial growing risk to traders with unfilled gaps left behind and the rapid extension seen in the index charts. Moreover, as energy prices continue to surge, adding to inflationary concerns and the supply chain bottlenecks clouding the path forward, earnings reports will have a lot to overcome.  That said, anything is possible during the highly emotional earning season. So study the risks carefully and trade wisely as the silly season ramps up to include the tech giants. 

Overnight Asian markets traded mixed with Hong Kong, once again leading the way as Chinese tech surged.  This morning European markets seem to be taking a wait-and-see approach with muted gains and losses as they ponder global market sentiment.  With a ramp-up in earnings reports and a pending petroleum number, U.S. futures point to a flat open at the time of writing this report. 

Economic Calendar

Earnings Calendar

We rap up again today with more than 60 companies listed on the calendar.  Notable reports include TSLA, ABT, ANTM, ASML, BKR, BIIB, CP, CFG, CMA, CCI, CSX, DFS, EFX, IBM, LRCX, MMLP, NDAQ, NEE, NEP, PPG, SLG, THC, TZOO, & VZ.

News & Technicals’

Netflix gained 4.4 million new subscribers in the third quarter, but only 70,000 of them came from the U.S. and Canada.  The streaming service has added fewer than 1 million new subscribers from the U.S. and Canada in the past 12 months.  Netflix said 142 million subscribers have watched at least two minutes of its new hit “Squid Game.”  In August, Federal Reserve Chairman Jerome Powell laid out five reasons supporting his view that the current run of high inflation will go away.  Powell has plenty of time to be correct, and many professional economists also hold the “transitory” position.  However, expectations for inflation among consumers and investors, as well as from some Fed officials, continue to rise.  This year, supply chains everywhere have been hit by massive disruptions from container shortages to floods and Covid infections, setting off port closures.  “Suddenly retailers and manufacturers are overordering because of these supply chain issues, and that’s just leading to essentially an even worse scenario,” Jonathan Savoir, CEO of supply chain technology firm Quincus told CNBC’s “Squawk Box Asia” on Monday.  In addition, the energy crises in mainland China and Europe are the latest to roil the shipping industry.  The 10-year Treasury yield topped the highest point since mid-May, rising to 1.67% late Tuesday night and trading at 1.68% early Wednesday morning.  The 30-year bonds also rose in early trading to 2.02%.

Though the bulls continue to matain control energized by earnings, we also have a substantial extension in the charts that create a signifiant risk.  With the T2122 indicator in a short-term overbought condition, traders should be on the lookout for potential consolidation or even a profit-taking pullback. In addition, the index charts have several unfilled gaps in the recent rally.  Surging energy prices continue to add pressure on consumers and the inflationary impacts on everything bought or sold.  Supply chain bottlenecks are also a significant concern as we head into the holiday season as worries of empty shelves add additional pricing pressures.  Recently the IMF downgraded growth expectations with a warning of global stagflation.  Of course, anything is possible during earnings season, and with emotions running, hot traders should expect challenging price volatility to stick around in the weeks ahead.

Trade Wisely,

Doug

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