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

The market may struggle for energy and inspiration as we wait for Wednesday afternoon’s FOMC rate decision.  We will have a few housing data points and very few notable earnings reports to inspire, so plan on some challenging price action in the next couple of days.  The DIA, SPY, and QQQ have confirmed the current downtrend making new lows with the IWM lagging, trying to hold at the September lows.  Unfortunately, the Friday bounce lacked the energy to test overhead resistance levels or improve the deteriorating technical conditions of the index charts. 

Overnight Asian markets traded down across the board with China lowering rates and a pending Bank of Japan rate decision later this week.  European markets are also seeing red this morning with all eyes on the Fed rate decision.  The selling pressure continues this morning with the U.S. futures pointing to a gap down open, reversing the Friday bounce as the bear show their teeth ahead of the FOMC.  Plan for challenging price action as we wait.

Economic Calendar

Earnings Calendar

Although we have a number of companies listed, we have just one confirmed, and it happens to be a notable AZO.

News & Technicals’

U.S. President Joe Biden said in an interview broadcast on Sunday that U.S. forces would defend Taiwan in the event of a Chinese invasion, his most explicit statement so far on the issue.  Asked in a CBS “60 Minutes” interview whether U.S. forces would defend the self-ruled island claimed by China, he replied: “Yes, if there was an unprecedented attack.”  Asked to comment, a White House spokesperson said U.S. policy towards Taiwan had not changed.  Volkswagen targets a valuation of $70.1 billion to $75.1 billion for luxury sportscar maker Porsche.  Volkswagen was expected to announce the pricing range of the Porsche IPO, planned for late September or early October, later in the evening.  UBS downgraded its full-year growth forecasts from 3% to 2.7% for 2022 and from 5.4% to 4.6% for 2023.  Their Zero-covid policy has essentially “stomped on human investor confidence in China,” said Mattie Bekink, China director for the Economist Intelligence Corporate Network.  Goldman Sachs economists said the next key level to watch for the Chinese currency is 7.2 against the dollar. 

In a bid to control domestic prices, the Indian government banned exports of broken rice and slapped a 20% export tax on several varieties of rice starting Sept. 9.   The Philippines and Indonesia will be most vulnerable to the ban, according to Nomura.  India accounts for approximately 40% of global rice shipments, exporting to more than 150 countries.  Treasury yields held frim Monday morning with the 12-month at 3.95%, the 2-year at 3.93%, the 5-year at 3.69%, the 10-year at 3.49%, and the 30-year at 3.55%. 

Friday began with a gap down, but the bulls went to work to rally back to resistance levels but lacked the energy or inspiration to get the job done.  The DIA, SPY, and QQQ confirmed the current downtrend making lower lows, but the IWM stubbornly held firm at the September lows.  Unfortunately, China’s weakening economy that cut rates during the night and the energy crisis in Europe combined with a pending FOMC rate increase has the bears active in the premarket this morning.  Price action will likely remain challenging as we wait on the FOMC and several housing data points as the only inspiration. 

Trade Wisley,

Doug

Most of Wednesday could be described as frustrating and choppy as the bulls and bears slept in waiting for all the economic reports before the bell today.  The good news is by the end of the day, the bulls managed to hold September lows.  But, unfortunately, they did so in not a very convincing way leaving more questions than answers.  So, expect price volatility and be ready for just about anything at the open, with bond yields continuing to rise, with a hefty rate increase next week.

Asian market trade was relatively flat during the night as Chana kept mid-term rates steady as their currency weakened against the dollar.  European markets also trade mixed this morning as they cautiously await U.S. economic data.  U.S. futures had given up early gains at the time of writing this report with several potential market-moving reports before the open.  Plan carefully as another day of wild price action is possible.

Economic Calendar

Earnings Calendar

On the Thursday earnings calendar, we only have seven confirmed earnings reports; the only notable one for the day is ADBE.

News & Technicals’

A tentative railroad agreement could avert a national rail strike that would have shut down a vital part of the U.S. transportation network.  According to the Association of American Railroads, the new contracts provide 24% pay increases over 5 years from 2020 through 2024 and include immediate payouts averaging $11,000 upon ratification.  More than three months after Elon Musk’s back-to-office edict, Tesla still doesn’t have the room or resources to bring all its employees back to the office.  The company is now surveilling employees’ attendance, with Musk and other execs receiving detailed weekly reports on absenteeism.  Some employees who were previously designated as remote workers but said they might be unable to relocate to meet the return-to-office requirements were dismissed in June.  Ethereum’s biggest-ever upgrade just took effect, in what industry experts call a game changer for the entire crypto sector.  Thus far, all signs suggest the so-called merge — which is designed to cut the cryptocurrency’s energy consumption by more than 99% — was a success. 

Ford on Wednesday unveiled the redesigned 2024 Mustang hardtop and convertible with two gas-powered engines.  The automaker said redesigning the iconic car without any electrification is part of its “Mustang family” strategy, including the all-electric Mustang Mach-E crossover.  As a result, the Mustang could be the last gas-powered muscle car from the Detroit automakers — a narrowing of the segment that seemed far-fetched even a few years ago.  In addition, Walmart is launching a virtual try-on tool to help shoppers see how a shirt, dress, or another clothing item would look on their bodies.  It is the latest way the retailer uses technology from Zeekit, a startup it acquired last year.  The discounter is launching the tool as some shoppers trim back purchases of discretionary purchases, such as clothing.  Treasury yields rose early Thursday, with the 6-month at 3.75%, the 12-month at 3.92%, the 2-year at 3.83%, the 5-year at 3.64%, the 10-year at 3.45%, and the 30-year at 3.50%.

Both the bulls and bears slept in on Wednesday in a choppy session that finally got a little bullish attention as the dark pool trades consolidated to the market at the end of the day.  Though the light volume session was frustrating, they did manage to hold the September lows as traders assessed the risk of all the potential market-moving reports on Thursday morning.  Once again, premarket futures are trying to put on a bullish face, but with Jobless Claims, Philly Fed, Retail Sales, Import/Export prices, and Empire State numbers before the bell, anything is possible by the open.  After that, we have Industrial production, business inventories, and a natural gas report.  We should plan for another volatile session keeping a close eye on support and resistance levels keeping in mind the Fed will be rolling off their balance sheet today with rate increases planned for next week. 

Trade Wisely,

Doug

A CPI reading hotter than expected woke up angry bears Tuesday morning, with indexes failing their 50-day moving average supports once again.  As a result, the U.S. dollar surged higher, and treasury yields spiked, adding pressure to an already hawkish FOMC.  September lows held as support so far, but with another inflation number, this morning with the PPI, uncertainty abounds.  So, prepare for another day of challenging price action as the battle to hold the Sept. lows begins.

Asian markets had a rough night in reaction to the U.S. inflation data, with the Nikkei leading the selling down 2.78%.  European markets trade mostly lower this morning as they cautiously wait for the PPI number.  However, U.S. futures try to put on a brave face ahead of the producer prices hoping for a hump day bounce after the Tuesday reversal.  Once again, anything is possible by the open, and keep in mind the Fed balance sheet runoff ramps up with an FOMC decision next week.

Economic Calendar

Earnings Calendar

As we slide toward the end of the quarter, earnings report numbers continue to dwindle, with only eight confirmed reports today.  Notable reports include DOOO & TNP.

News & Technicals’

Rather than fuel, food, shelter and medical services drove costs higher in August, slapping a costly tax on those least able to afford it.  As a result, the food at home index, a good proxy for grocery prices, has increased 13.5% over the past year, the most significant rise since March 1979.  For medical care services, the monthly increase of 0.8% was the fastest monthly gain since October 2019.  Veterinary care was up 10% from a year ago.  The consumer price index rose 9.9% annually, according to estimates published Wednesday by the Office for National Statistics.  Last week, new British Prime Minister Liz Truss announced an emergency fiscal package capping annual household energy bills at £2,500 ($2,881.90) for the next two years.  President Joe Biden and several Cabinet secretaries have been in talks with the railroad unions and the companies for months to try to avert the strike.  However, two of the largest unions, representing half of railroad union workers, are still negotiating.  That leaves about 60,000 workers ready to strike if a deal is not made.  About 40% of the nation’s long-distance trade is moved by rail.  If the unions strike, more than 7,000 trains would be idled. 

About 40% of the nation’s long-distance trade is moved by rail.  If the unions strike, more than 7,000 trains would be idled.  As a result, JPMorgan can adjust its cost structure not only by cutting jobs but also by reducing the size of employee bonuses, he said.  Trading has provided a welcome boost this year, however.  JPMorgan said market revenue was headed for a 5% increase from a year earlier, as strong activity in fixed income offset lower equities trading revenue.  Treasury yields continued to rise Wednesday, with the 6-month at 3.72%, the 12-month at 3.87%, the 2-year at 3.78, the 5-year at 3.61%, the 10-year at 3.43%, and the 30-year at 3.51%.

The CPI report woke up some angry bears Tuesday morning, reinforcing aggressive rate increases by the FOMC as food and medical cost increases stepped up to drive inflation.  The selling created technical damage as the indexes once again failed their 50-day moving averages.  However, September lows are held as price support as we face another inflation this morning with the PPI.  The morning’s question is, can the Sept. lows continue to hold after the producer prices come out?  We will soon find out, but traders should continue to expect challenging price action.  The rising dollar and the sharp increases in bond yields also present a substantial stumbling block for the U.S. market and the global market conditions.  Plan for more uncertainty with Fed balance sheet runoffs and rate increases around the corner.

Trade Wisely,

Doug

Analysts and talking head pontificators suggest a wide range of possibilities when the CPI number releases at 8:30 AM eastern.  Some say prepare for a powerful rally, while others suggest new market lows are on the way.  Still, others say the numbers will be confusing with contradictory results from the monthly to core numbers.  So, although the entire world is waiting and watching, the only thing that matters is how the market reacts to the data!  Plan for the price action to be initially volatile and dangerous except for the most experienced day traders.  After that, anything is possible but keep in mind the bigger picture of a slowing global economy and an aggressive FOMC rate increase just around the corner.

While we slept, the Asian market rose slightly with cautious hope waiting on the U.S. economic numbers.  European markets see modest gains across the board as they watch the U.S. inflation data report.  But, with bold anticipation, U.S. futures point to a substantial gap up open ahead of the CPI report.  However, anything is possible as the world reacts to the data.  So, expect some wild and challenging price action that could include some big point whipsaws as investors digest the numbers.

Economic Calendar

Earnings Calendar

Tuesday is another very light day on the earnings calendar with just 12 confirmed reports, most of which are tiny small caps companies.  So, the only marginally notable report will be from CNM today.

News and Technicals’

Peloton announced Monday that co-founder John Foley is resigning as executive chairman.  Chief Legal Officer Hisao Kushi, another co-founder, is also departing.  Uber veteran Tammy Albarrán will replace him.  The changes come as CEO Barry McCarthy orchestrates a massive transformation plan for the fitness company.  Nintendo said sales of Splatoon 3 in Japan surpassed 3.45 million units in the first three days since its Sept. 9 launch, marking a new record.  Nintendo shares rose 5% on Tuesday after the announcement.  Later Tuesday, the company will also hold its Nintendo Direct event, where it will reveal details of future games, which will help keep up the momentum for its aging Switch console.  Oracle came up short on profit, but its revenue met expectations.  The company closed its $28 billion acquisition of health data software maker Cerner in the quarter.  According to a statement, revenue growth in the quarter ended Aug. 31 accelerated from the 5% it posted in the prior quarter. 

Credit Suisse expects the Federal Reserve to pause interest rate hikes sooner than widely expected due to tumbling inflation.  As a result, according to the firm’s chief U.S. equity strategist, it will launch a powerful market breakout.  The August consumer price index will be released Tuesday at 8:30 AM.  ET, and it is expected to show inflation is moderating.  The report could be confusing because economists surveyed by Dow Jones expect headline CPI to decline by 0.1%, but it is expected to rise by 0.3%, excluding energy and fuel.  The report is seen as key guidance for next week’s Federal Reserve rate decision.  Still, economists say it is also critical for the longer-term view on interest rates since it could show whether some causes of inflation are receding.  Treasury yields moved very little early Tuesday, with the 12-month at 3.60%, the 2-year at 3.52%, the 5-year at 3.40%, the 10-year at 3.32%, and the 30-year at 3.48%. 

According to the vast amount of pontificators, the CPI number could plunge the market to new depths or send us into the stratosphere with a powerful rally!  But, no matter the number, the most important thing is how the market reacts.  One thing we can most likely count on is the reaction will likely create significant volatility rewarding some and punishing others at the open, which could be anything!  But, despite how the market reacts, it’s unlikely to deter the Fed from raising rates aggressively in the coming FOMC meeting but may affect future decisions.  In addition, the weakening global conditions and geopolitical issues will continue to be stumbling blocks we will have to deal with moving forward.  So, fasten your seatbelt, plan carefully and get ready for the fireworks to begin.

Trade Wisely,

Doug

After such a long stretch of selling, the current relief rally is a welcome sight, but with significant price resistance overhead, be careful getting caught up in the enthusiasm.  Anything is possible with the T2122 indicator quickly reaching an overbought condition and a week full of market-moving economic data.  Keep in mind the Fed has been clear about its intentions to raise rates, and the worsening economic conditions in China and Europe should not be ignored.  Long story short, enjoy the rally but try not to drink too much of the Kool-aid!

Overnight Asian markets rallied, with the tech-heavy HSI leading the bullishness up 2.69%.  European markets trade green across the board this morning with a cautious eye on U.S inflation data.  U.S. futures look to extend the relief rally indicating a gap up open as we wait for the CPI number Tuesday morning.  With so much data coming out way, expect price volatility and watch for clues of bear activity as we near price resistance levels. 

Economic Calendar

Earnings Calendar

We have a light day of earnings to kick off the new trading week with just 14 confirmed reports, most of which are very small-cap companies.  So, the only notable report for today is ORCL reporting after the bell.

News & Technicals’

JPMorgan Chase has agreed to acquire a payments startup called Renovite to fend off threats from fintech firms, including Stripe and Block, CNBC has learned.  While JPMorgan is often content to partner with fintechs and takes relatively small stakes in them, the bank felt that Renovite’s product was too important not to own outright, according to a JPMorgan executive.  The acquisition, reported first by CNBC, is the latest in a string of recent fintech deals made under CEO Jamie Dimon.  The bank has acquired at least five fintech startups since late 2020.  Spending by big retailers, including Walmart and Target, is way up this year, despite big earnings declines.  As a result, technology spending is a top priority, while other costs are more likely to be cut.  In addition, store refreshes are a focus for some brands as new investments reflect changes in how customers shop.  With expectations for sluggish consumer income to rebound in 2023, future market share is on the line.  The Biden administration plans next month to broaden curbs on U.S shipments to China of semiconductors used for artificial intelligence and chipmaking tools, several people familiar with the matter said.  The Commerce Department intends to publish new regulations based on restrictions communicated in letters earlier this year to three U.S. companies — KLA, Lam Research, and Applied Materials, the people said, speaking on the condition of anonymity.  The letters, which the companies publicly acknowledged, forbade them from exporting chipmaking equipment to Chinese factories that produce advanced semiconductors with sub-14 nanometer processes unless the sellers obtain Commerce Department licenses.  Treasury yields ticked slightly lower early Monday, with the 12-month at 3.61%, the 2-year at 3.54%, the 5-year at 3.42%, the 10-year at 3.330%, and 30-year at 3.45%.

Friday was a good day for the bulls gapping up and finding the energy to push higher to test price resistance and technical levels of the index charts.   With significant overhead price resistance levels just above and a busy week of economic data that includes CPI, PPI, and Retail Sales numbers, expect considerable volatility.  Although the Fed has entered its quiet period ahead of the FOMC meeting, committee members have been clear and consistent about their intentions to raise rates.  As the T2122 indicator nears an overbought condition, be careful overtrading long positions and watch for clues of bear attacks.  However, with so many clues of a worldwide economic weakening, it’s nice to have and enjoy the benefits of the current relief rally.

Trade Wisely,

Doug