A Tough Week

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A Tough Week

It’s been a tough week of price action, with economic reports continuing to show deteriorating economic conditions.  However, since the bears have thus far been unable to make new index lows, there may be hope of a relief rally if today’s economic data cannot inspire the bears.  The T2122 indicator suggests a short-term oversold condition, so fingers crossed the PMI, ISM, and Construction spending numbers can show us a light at the end of the tunnel!  Keep in mind we are heading into a 3-day weekend, so plan your risk carefully.

While we slept, Asian markets closed Friday, trading with losses across the board, with the Nikkei leading the way.  European markets trade mixed and near the flat line after ECB warns of rate hikes on the way after their inflation rate hit a record high of 8.6%.  Though U.S. futures have recovered from overnight lows, they continue to point to a bearish open as we wait on manufacturing and construction data with an uncertain 3-day weekend ahead.

Economic Calendar

Earnings Calendar

To kick off third-quarter trading, we have no confirmed earnings reports.

News & Technicals’

European inflation hits a new record high of 8.6%, and the ECB is preparing for a rate hiking cycle.  Speaking earlier this week, ECB President Christine Lagarde struck a hawkish tone.  As a result, there are growing questions about the future of monetary policy in the eurozone amid fears of a recession in the coming months.  Philip Lane, the bank’s chief economist, said the ECB needs to remain vigilant.  Chief Product Officer Chris Cox warned employees at Facebook-parent Meta that lean times are ahead.  To make up for last year’s Apple privacy update, which decreased the company’s ability to target ads, Meta will invest in Instagram Reels, its TikTok competitor, as well as shopping and messaging features.  Kohl’s has called off talks to sell its business to The Vitamin Shoppe owner Franchise Group; sources tell CNBC.  This decision from Kohl’s comes as its stock price slumps and its sales decline.  Franchise Group had been lowering its bid for Kohl’s to closer to $50 per share from about $60.  Earlier this year, Kohl’s rejected a buyout offer from Starboard-backed Acacia Research priced at $64 a share.  Its stock closed Thursday at $35.69.  Micron Technology, a major vendor of memory chips for PCs and smartphones, said on Thursday that it now expects smartphone sales to be meaningfully lower than expected for the rest of 2022.  The company said consumer demand is slowing because of China’s lockdowns, the Russia-Ukraine war, and rising inflation.  Treasury yields fell in early Friday trading, with the 10-year slipping to 2.97% and the 30-year dipping to 3.16%. 

It’s been a tough week for the market and the worst first half of the year since 1970.  With Europe’s inflation rate hitting 8.6%, beginning a rate hiking cycle, and the uncertainty of 3rd quarter earnings just around the corner, the challenging times are likely to continue in the weeks ahead.  However, there may be hope that a relief rally could soon begin.  As of now, the bears have been unable to make a new market low, and the T2122 indicator remains in a short-term overbought condition.  Trader anticipation of earnings season may also inspire some short bursts of buy-side speculation.  That said, geopolitical tensions and the decorating economic data are likely to make price action challenging, with gaps and overnight reversal possible as we wait on the banks to report. 

Trade Wisely,

Doug

The Hits Keep Coming

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The Hits Keep Coming

Weak economic reports, a confirmed recession, growing geopolitical concerns, and the hits keep coming as we slide toward the 3rd quarter and a likely tough earnings quarter for companies to perform.  Additionally, today we face the possibility of rising jobless claims and a Personal Income and Outlays report that likely supports the stance of the more interest rate hikes.  Although the T2122 indicator suggests a short-term oversold condition, today’s data could keep the bears engaged and discourage the bulls from defending.  So, try not to panic, avoid speculation, and don’t fight the bear! 

Asia markets traded mostly lower while we slept except for the Shanghai with modest gains as data showed their factory activity grew in June.  However, European markets trade decidedly bearish this morning due to persisting recession concerns.  With another day of potentially market-moving data just around the corner, the U.S. futures suggest a substantial gap down.  So, protect your capital and prepare for another challenging day of volatile price action. 

Economic Calendar

Earnings Calendar

This Thursday, we have our busiest day of the week on the earning calendar.  Notable reports include MU, WBA, AYI, STZ, SMPL, LNN, RNLX, & TRIB.

News & Technicals’

Wells Fargo CEO Charles Scharf said at the Aspen Ideas Festival on Wednesday that he expects to see the Federal Reserve continue with more significant rate hikes.  Scharf credited the Fed for being “very clear about how they’re going to think about what the right movements are going to be,” but the bank CEO still thinks the economy will be surprised by the repercussions.  Hackers targeted Horizon, a blockchain bridge that lets users swap tokens between different networks.  There are “strong indications” that Lazarus Group, a hacking collective with solid ties to Pyongyang, orchestrated the attack, blockchain analytics firm Elliptic said in a blog post-Wednesday.  Harmony said it is “working on various options” to reimburse users as it investigates the theft but stressed that “additional time is needed.”  Bitcoin on Thursday briefly fell below $19,000 as the world’s largest digital currency remains under pressure.  Investors are also worried about rampant inflation forcing global central banks to raise interest rates.  That also sparks fears of a recession in the U.S. and other countries.  Meanwhile, major crypto hedge fund Three Arrows Capital fell into liquidation, adding further woes to the market.  Treasury yields moved slightly lower in early Thursday trading, with the 10-year priced at 3.06% and the 30-year dipping to 3.10%.

The hits keep coming, with the GDP confirming a recession, mortgage applications continuing to recede, and Powell reiterating an aggressively hawkish Fed.  But, if there was some good news, it was the decline in the oil and gas prices as the overall market chopped in a wide price range on lower than average volume.  Today we have the potential to receive some more hits with Jobless Claims that have edged slightly higher the last two weeks and a reading on Personal income and outlays that likely favors the hawkish Fed stance.  The T2122 indicator is in the bullish reversal zone, but with the low sentiment, we can’t rule out more downside punishment, so buckle up for another challenging day of price action and volatility. 

Trade Wisely,

Doug

Economic Conditions

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Market worries about declining economic conditions left behind bearish reversal candle patterns on the index charts as the bears halted the recent relief rally.  Today the question of whether the U.S. economy is or is not in recession will be answered before the bell with the release of the GDP report.  What happens next is anyone’s guess, so plan your risk carefully as we will then wait for yet another Jerome Powell speech reaction.  Adding in the end of the quarter price jockeying, expect the uncertainty and challenging price action to extend into the possible market-moving economic reports Thursday morning.

The Asia market’s wild price swings continued overnight as sellers regained control, with the Hong Kong’s tech-laden index falling 1.88%, leading all indexes lower by the close of trading.  European markets focused on economic conditions trade in the red across the board this morning.  As we wait on the GDP report, a Jerome Powell speech, U.S. futures point to bearish open.  Recession or no recession, that is the question!

Economic Calendar

Earnings Calendar

Wednesday brings us a few more earnings events on the earnings calendar to add to the day’s price uncertainty.  Notable reports include BEND, BBBY, CULP, DCT, GIS, MKC, NG, PDCO, PAYX, SCHN, SGH & UNF.

News & Technicals’

The Fed opted for a 75 basis point hike to its benchmark rate earlier this month, the most significant increase since 1994, with inflation running at a 40-year high.  Mester — a voting member of the Federal Open Market Committee — said July’s meeting would likely involve a debate among FOMC policymakers over whether to opt for 50 or 75 basis points.  Brendan Carr, one of the FCC’s commissioners, shared Tuesday via Twitter a letter to Apple CEO Tim Cook and Alphabet CEO Sundar Pichai that pointed to reports and other developments that made TikTok non-compliant with the two companies’ app store policies.  Alphabet, Apple, and TikTok did not immediately respond to CNBC requests for comment.  Carr’s letter, dated June 24 on FCC letterhead, said if Apple and Alphabet do not remove TikTok from their app stores, they should provide statements to him by July 8.  Tesla is closing its office in San Mateo, California, where employees worked on improving the company’s driver assistance systems.  The company is eliminating about 200 jobs along with the closure.  Omicron is continuing to evolve into more contagious subvariants.  Dr. Peter Marks, who heads the FDA’s vaccine division, said the U.S. faces a Covid outbreak this fall as vaccine immunity wanes and people spend more time indoors.  Updating the shots to target omicron could provide more durable protection against the virus, though current supporting data is limited.  Economists fear that “forever sanctions” on Russia, and Europe’s reliance on the country’s gas, mean the continent is suffering disproportionately.  Reduced flows of Russian gas, and the lingering threat of a full supply disruption, have driven some European governments toward a reluctant return to coal.  A European Commission energy spokesperson told CNBC that Gazprom and Moscow were using energy supplies as an “instrument of blackmail.”  Treasury yields relaxed slightly in early Wednesday trading, with the 10-year dipping to 3.17% and the 30-year slipping to 3.29%.

Worries about the economic outlook brought the bears back to work yesterday after the morning gap and a brief surge higher.  The pop and drop pattern left behind bearish reversal patterns near downtrends and price resistance levels punishing those that rushed in with a fear of missing out.   The GDP number will finally settle the debate if the U.S economy has escaped recession or has already entered recession.  How the market reacts to the data is anyone’s guess.  However, the manufacturing numbers earlier this week indeed suggest a slowing economy that could soon produce an increase in jobless numbers this summer.  Traders should also brace for the possible price volatility created by another Jerome Powell speech that has already been foreshowed by Mester’s 75 basis point increase in July.  Buckle up for another day of uncertainty as the drama unfolds. 

Trade Wisely,

Doug

Uncertain Chop

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Uncertain Chop

Though we began the day with a bullish gap up, we spent the rest of the day in an uncertain chop zone that finally came to rest at the close, mostly lower.  When we pair the typical end-of-quarter window dressing possibility, a GDP number that could show us in recession with index downtrends and significant overhead resistance, it’s easy to understand the uncertainty of what comes next.  So, expect price volatility as we wait for the GDP reading and another dose of Jerome Powell’s tough talk on inflation.  Plan your risk carefully as anything is possible.

Asian markets continued the bear market rally overnight, closing Tuesday trading with modest gains.  European markets trade green across the board this morning as the ECB downplays inflation.  U.S. futures point to another gap up open toward overhead resistance levels ahead of trade and consumer confidence reports.  Avoid the fear of missing out as we stretch higher and near technical resistance levels as we wait on the GDP report.

Economic Calendar

Earnings Calendar

With just three days left until the end of the quarter, we have light days on the earnings calendar.  Notable reports include AVAV, CGNT, EPAC, SNX, AMED & PRGS.

News & Technicals’

JPMorgan Chase and Citigroup said Monday that increasingly stringent capital requirements forced the firms to keep their dividend unchanged while rivals announced bumps to their quarterly payouts.  Bank of America said that it was raising its quarterly dividend by 5% to 22 cents per share.  Morgan Stanley said it raised the payout 11% to 77.5 cents per share.  Wells Fargo boosted its dividend by 20% to 30 cents a share.  Goldman Sachs appeared to have one of the larger dividend increases, a 25% bump to $2.50 per share.  Investors are concerned about high inflation and have been closely tracking what the ECB is saying, but Lagard plays down recession risks.  They are also wary of the high levels of debt in Europe, particularly Italy, and how a return to tighter monetary policy could become a financial constraint for these economies.  However, Legard says the ECB is ready to move faster on rates if needed.  Overseas travelers will only need to quarantine at a centralized facility, such as a hotel, for seven days upon arrival in mainland China, the National Health Commission announced Tuesday.  Previously, overseas arrivals in China typically had to spend 14 to 21 days in centralized quarantine, depending on the country’s city of entry and destination.  Tuesday’s announcement also said that within China, close contacts of confirmed Covid cases would likewise only need to spend seven days in centralized quarantine, followed by three days of health monitoring at home.  Credit Suisse vows to forge ahead with its risk management overhaul, despite what its CEO called a “challenging” environment.  The embattled Swiss lender will hold an Investor Deep Dive event Tuesday, setting out reforms across its risk, compliance, technology, and operations functions, along with the wealth management business.  The embattled Swiss lender will hold an Investor Deep Dive event Tuesday, setting out reforms across its risk, compliance, technology, and operations functions, along with the wealth management business.  Treasury yields moved slightly higher in early Tuesday trading, with the 10-year rising to 2.23% and the 30-year increase to 3.34%.

After gaping up, the market price action spent the day in an uncertain chop, ultimately ending the day moslty lower.  While we can’t rule out the possibility of some end-of-quarter window dressing, the pending GDP could show us we are already in a recession and adds a significant dose of uncertainty.  We should also consider the possibility of a choppy consolidation as we wait on 3rd quarter earnings to begin, which could prove challenging due to the state of the economy and the inflationary pressures.  Finally, we will get the latest reading on the International Trade in Good numbers before the bell, followed by Case-Shiller and Consumer Confidence to keep us guessing what comes next.   Plan your risk carefully, remembering Wednesday morning before the open, and we get the GDP report and more Fed from Jerome Powell. 

Trade Wisley,

Doug

Bear Market Relief Rally

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Bear Market Relief Rally

Traders that jumped in on the Friday buying surge are hoping the bear market relief rally can follow through as we slide toward the end of the 2nd quarter.  There is, of course, the possibility of an end-of-quarter window dressing, but with down-trend and overhead resistance levels above, the bulls will have their work cut out for them.   This morning we face the Durable Goods and Existing Home Sales economic reports that analyses expect to both show declines.  Plan for some price volatility as the data is released, and prepare for just about anything with the threat of recession on the horizon. 

Asia markets rallied overnight after the strong Friday surge in the U.S. as the Hong Kong tech sector rose 2.35%.  European markets are also bullish this morning; however, they seem much more tentative ahead of potential market-moving data.  U.S. futures recovered from early losses to point toward a bullish open, hoping that the economic data won’t derail the relief rally.  So, plan carefully and keep a close eye on the overhead resistance that the bears may work to defend.

Economic Calendar

Earnings Calendar

Winding down the 2nd quarter, we have a light day to begin the week.  Notable reports include NKE, CIDM, DLNG, & JEF. 

News & Technicals’

Interest payments totaling $100 million were due on May 27 and were subject to a grace period that expired on Sunday night as Russia faces a historic default.  Sweeping sanctions imposed by Western powers in response to Russia’s invasion of Ukraine and countermeasures from Moscow have effectively ostracized the country from the global financial system.  Bolstering the defense of the Baltic region is seen as one of the most critical decisions for NATO leaders to take at the group’s June 29-30 summit.  The 30-member military alliance is poised to reflect on how the group can respond to Europe’s new security reality in the wake of Russia’s onslaught in Ukraine.  “We need to move to deterrence by denial.  We need a credible military construct on the Eastern flank that will deter Putin,” a spokesperson at Estonia’s foreign ministry told CNBC.  Three Arrows Capital, a crypto-focused hedge fund, has to meet a deadline on Monday to repay more than $670 million in loans to Voyager Digital or face default.  Voyager said it “intends to pursue recovery from 3AC” and is talking to its advisors “regarding legal remedies available.”  Three Arrows Capital, or 3AC, is facing a liquidity crisis after the collapse of terraUSD and luna, margin calls on its loans, and a massive slump in the crypto market.  U.K. tax officials recently fined wise CEO and co-founder Kristo Kaarmann £365,651 for defaulting on his taxes.  The Financial Conduct Authority has now opened an investigation into the matter.  The probe could have significant ramifications for Wise and its chief executive.  Vast container ships and chunky freight planes — essential in today’s global economy — can now be brought to a halt by a new generation of code warriors.  “The reality is that an airplane or vessel, like any digital system, can be hacked,” David Emm, a principal security researcher at Kaspersky, told CNBC.  In December, German firm Hellmann Worldwide Logistics said a phishing attack had impacted its operations.  Treasury Yields begin the week Higher with the 10-year pricing at 3.16% and the 30-year trading at 3.30% early Monday price action. 

The Friday surge upward raised hopes that a bear market relief rally can find some follow-through bullish energy.  Futures began trading in the red but reversed higher as Asian bulls went to work following the Friday U.S. rally.   However, this morning traders will turn their attention to the Durable Goods report, and Pending Home Sales figures that consensus suggests could show declines.  At the same time, the T2122 indicator though it moved substantially higher on Friday, still has some upside potential if the bulls can remain inspired.  With significant overhead resistance just above and the worries of a possible recession with the Wednesday GDP report, it would not be a surprise if the bears remain active defending the downtrends, so the bulls will have their work cut out for them!  Plan carefully, respect overhead resistance and expect price action to remain challenging in the days ahead. 

Trade Wisley,

Doug

75 Basis Point Increase

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The market chose to ignore the declining retail sales figures, and the 75 basis point increase inspired the bulls to push the relief rally higher after the Powell press conference.  Unfortunately, the end-of-day pullback left behind uncertain spinning top doji candle patterns raising concerns about what comes next!  Recession or no recession seems to be the question as the Fed tries to tamp down inflation.  With some notable earnings and potential market-moving economic reports this morning, expect the price action to remain challenging as we move toward a 3-day weekend.

Asian markets closed mixed overnight as they digested the FOMC decision.  However, European markets are decidedly bearish this morning, snaping the one-day relief rally.  U.S. futures point to a punishing gap-down reversal ahead of Housing numbers, Jobless Claims, and the Philly Fed Mfg. Data.  So, buckle up; the wild ride continues!

Economic Calendar

Earnings Calendar

Although we don’t have a few confirmed reports on Thursday, we have some potential market-moving companies.  Notable reports include ADBE, CMC, JBL, and KR.

News & Technicals’

Federal Reserve Chair Jerome Powell said Wednesday the central bank could raise interest rates by a similar magnitude at the next policy meeting in July.  “From the perspective of today, either a 50 basis point or a 75 basis point increase seems most likely at our next meeting,” Powell said at a news conference.  Bitcoin rose above $21,000 on Thursday following a jump in U.S. stocks.  However, investors are still reeling from a dramatic plunge in the cryptocurrency market which has seen bitcoin trade at levels not seen since December 2020.  In addition, the crypto market is dealing with several issues, including potential insolvency at lending firm Celsius and algorithmic stablecoin USDD losing its peg.  Western unity over the war in Ukraine is becoming more vulnerable as the war drags on.  One poll across Europe found a majority of people want an end to the war as soon as possible, even if it means territorial losses for Ukraine.  There is an increasing concern among the public in Europe and beyond about rising living costs.  CNBC’s Jim Cramer warned investors on Wednesday that while some stocks with low price-to-earnings multiples look cheap and therefore investable, it’s worth noting that they aren’t always recession-proof.  “There are the higher-quality ones that you can justify owning if you feel a little more sanguine about the economy,” the “Mad Money” host said.  GM on Wednesday said it is investing $81 million at its tech center in suburban Detroit to hand build the upcoming Cadillac Celestiq – a new electric flagship car for the brand that will be made in limited quantities.  The decision marks the first time GM will build a vehicle for commercial sales at its massive tech campus in Warren, Michigan.  GM is scheduled to officially unveil the car next month, which is expected to cost $200,000 or more.  Treasury yields pulled back slightly in early Thursday trading, with the 2-year @ 3.36%, the 5-year @ 3.54%, the 10-year @ 3.42%, and the 30-year trading at 3.44%.

Although Wednesday saw declining retail sales figures, the day kicked off on a bullish note and gained ground after the 75 basis point increase from the FOMC.  However, the price action was quite volatile, pulling back substantially from the afternoon highs.  While the modest relief rally was nice to see, the overall price action left more questions than answers with the uncertain candle patterns by the end of the day.  Today we will turn our attention to Housing numbers, Jobless Claims, and the Philly  Fed Mfg. Data.  The index chart technicals remain very bearish, while the T2122 indicator continues to show a short-term oversold condition.  Unfortunately, the bears seem to be cack at work this morning with the futures hinting at new market lows at the open today so get ready for another hectic day of challenging price action.

Trade Wisely,

Doug

Tidal Wave coming ashore

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Tidal Wave

Uncertainty abounds as traders and investors await the tidal wave of market-moving data coming ashore today.  The first impact comes with a reading on Retail Sales and grows higher by the afternoon with the expectation of a more aggressively hawkish Fed decision.  How the market responds is anyone’s guess but expects the price action to be dangerously volatile.  Price gaps, lighting fast whipsaws, punishing reversals with periods of frustrating directionless chop are all possible today so plan carefully with consideration to capital preservation. 

Overnight Asian markets closed mixed after better than expected Chinese economic data.  This morning, European markets trade green across the board as the ECB holds an emergency meeting due to rising risks.  U.S. futures point to a bullish open trying to put on a brave face and encourage a relief rally despite the market-moving data and the wild volatility it could create.  Prepare for just about anything!

Economic Calendar

Earnings Calendar

Wednesday is a light day on the earnings calendar, with only a handful of confirmed reports.  The only particularly notable of them is WLY. 

News & Technicals’

Borrowing costs for many governments have risen in recent days.  In fact, a measure known as Europe’s fear gauge has hit its highest level since early 2020.  The ECB’s decision to meet Wednesday also comes just hours ahead of a rate decision by the U.S. Federal Reserve.  In the wake of Wednesday’s announcement, bond yields have come down, and the euro moved higher against the U.S. dollar.  Wednesday’s meeting announcement also followed a speech by one of the central bank’s members that looked to address some of the recent market fears over financial fragmentation.  A 100 basis point rate hike by the Federal Reserve on Wednesday will be “medicine to stop this inflation,” said Wharton professor Jeremy Siegel.  “If [Powell] only does 50 [basis points], I think there is going to be a big disappointment.  Then [markets] are going to say he doesn’t have control, he isn’t going fast enough,” he said.  With annual inflation hitting a 40-year high of 8.6% annual inflation in May, the likelihood of sharper aggressive rate hikes has sent markets into a tailspin amid fears of a recession.  Microsoft co-founder Bill Gates said he thinks cryptocurrencies and NFTs are “100% based on greater fool theory.”  “Expensive digital images of monkeys” will “improve the world immensely,” Gates joked, referring to Bored Ape NFTs.  The tech billionaire said he’s “not involved” in crypto: “I’m not long or short any of those things.”  According to Mortgage News Daily, the average rate on the popular 30-year fixed mortgage rose 10 basis points to 6.28% Tuesday.  The rate was 5.55% one week ago.  Rising rates have caused a sharp turnaround in the housing market.  According to the National Association of Realtors, home sales have fallen for six straight months.  Treasury yields pulled back slightly in early Wednesday trading, with the 12-month @ 3.07%, 2-year @ 3.30%, 5-year @ 3.48%, 10-year @3.38%, and the 30-year priced at 3.38%. 

 Index charts remained deeply oversold as the world waited on the tidal wave of market-moving data coming ashore today.  It begins with a reading on Retail Sales figures and ends with an FOMC rate decision where most expect the committee to act more aggressively hawkish than initially planned.  The T2122 indicator suggests we should watch for a potential relief rally to occur at any time.  Still, if the data continues to inspire the bears, there is no reason to believe sellers can’t continue to dominate.   We should plan for a wild day of price volatility that could be very punishing to inexperienced traders.  Remember, cash is a position, and the discipline to wait for a better trading edge can save your account from significant damage.  This will pass, and better days lie ahead, so be willing to stand aside and protect your capital as the drama unfolds.

Trade Wisely,

Doug

Rising Bond Yields

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Rising Bond Yields

Rising bond yields added significant pressure to yesterday’s ugly selloff as the entire world worries about the possibility of recession if the FOMC becomes more aggressive in battling the rising inflation.  Though indicators suggest a rally to relieve a short-term oversold condition, the pending Producer Price report could keep the bears in control if the number comes in hot.  The hits keep coming Wednesday morning with several potential market-moving reports, including the after-noon rate decision.  So, expect the challenging price actions to continue in the days ahead.

While we slept, Asian markets bounced back from early selling to close the volatile session to close mixed.  However, European markets trade red across the board, with the risk of recession weighing on investor sentiment.  Ahead of a PPI report, U.S. futures try to put on a brave face hoping for a little relief rally, and currently suggesting a bullish open. 

Economic Calendar

Earnings Calendar

As we wind down the 2nd quarter earnings, the days will be light with mostly small-cap companies reporting.  Notable reports include CNM, FERG, RFIL, & TUYA.

News and Technicals’

According to CNBC’s Steve Liesman, Fed policymakers are entertaining the idea of a 75-basis-point rate increase this week.  Bond yields pointed to the possibility of a more aggressive Fed as the yield on the 10-year Treasury shot up to 3.37%, while the 2-year yield most closely tracks Fed intentions accelerated to 3.34%.  The prospect that the Fed and other central banks will be forced to hike interest rates more aggressively has reignited fears of a global recession.  Investors await a landmark monetary policy announcement from the Federal Reserve on Wednesday, with bets on a 75 basis point interest rate hike rising.  “What we’re currently seeing is central banks somehow starting to panic … therefore we have this big stock market correction, I think rightly so,” said Carsten Brzeski, global head of macro at ING.  A $4 billion bet on bitcoin by software firm MicroStrategy is in jeopardy after the cryptocurrency’s recent plunge.  The dot-com bubble-era firm’s bitcoin stash is now worth $2.9 billion, translating to an unrealized loss of more than $1 billion.  To make matters worse, MicroStrategy is now faced with a margin call that investors fear could force the company to liquidate its bitcoin holdings.  Bitcoin briefly dropped below $21,000 on Tuesday in Asia before bouncing back slightly, continuing its plunge as investors sold off risk assets.  Around $200 billion has been wiped off the cryptocurrency market since Saturday, as the value of all digital coins fell below $1 trillion for the first time since Feb. 2021.  Crypto assets were hammered on Monday as concerns mount over the solvency of lending platform Celcius and as Binance paused withdrawals briefly.  Treasury yields pulled back in early Tuesday trading: this morning prices, 2-year @ 3.28%, 5-year @ 3.42%, 10-year @ 3.30% and the 30-year trading at 3.29%.  The inversion of the 5/10 and 5/30 yields remains a concern that the Fed can do little to resolve.

Monday was rough for the market as traders and investors monitored rising bond yields and worried about possible recession if the FOMC moves more aggressively to curb the rising inflation.  Although CSCO reported better-than-expected earnings results, will it be enough to keep the bulls engaged if the PPI number comes in hot?  The T2122 indicator suggests and short-term oversold condition after yesterday’s ugly drop, but that may not stop the bears if the Producer’s Prices add to recession fears.  We should also keep an eye on the possibility of forced redemption if Mutual Fund and 401K holders begin to capitulate to preserve their retirement capital.  Though we could get a relief rally today, price action could be very challenging with Retail Sales numbers and the FOMC decision just around the corner. 

Trade Wisely,

Doug

Igniting Uncertainty

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Igniting Uncertainty

Friday’s CPI reading crushed the hope that inflation had peaked, igniting uncertainty about the next FOMC decision.  Will they hold the course, or will the Fed act more aggressively to curb inflation?  Markets worldwide are under pressure as bond yields surge in speculation and recession fears grow.  Expect a very challenging week of price action with an economic calendar heavily laden with market-moving events.  Buy the dip buyers continue to get severely punished as they can no longer count on the Fed Put.  Prepare for a rough week that will likely favor only the most experienced day traders, so be willing to stand aside to protect your capital. 

Asian markets traded down across the board, with the Nikkei and HSI down more than 3% at the close.  European markets continue Friday’s selling seeing only red this morning as bond yields surge higher.   U.S. futures point to a substantial bearish open that will test 2022 market lows as support.  With all the uncertainty ahead, the question is, will the support hold?  Buckle up it’s going to be a wild day!

Economic Calendar

Earnings Calendar

We have a very light day on the Monday earnings calendar.  Notable reports include ORCL ZDGE.

News & Technicals’

U.S. President Joe Biden has repeatedly indicated the U.S. would defend Taiwan militarily upon attack, only to have the White House deny a shift in a decades-long “one-China policy.”  “We believe he is actually paying lip service to this one-China policy,” said Zhou Bo, a senior fellow at Tsinghua University’s Center for International Strategy and Security Studies.  Taiwan is a democratically self-ruled island 72-year-old government in Beijing considers part of its territory.  Beijing has maintained it seeks peaceful reunification with Taiwan.  Bitcoin tumbled below $24,000 late Monday, hitting its lowest level since December 2020, as investors dump crypto amid a broader sell-off in risk assets.  Meanwhile, a crypto lending company called Celsius has paused withdrawals for its customers, sparking fears of contagion into the broader market.  Macro factors are contributing to the bearishness in the crypto markets, with rampant inflation continuing and the Federal Reserve expected to hike interest rates this week to control rising prices.  Crypto lender Celsius said it pauses all account withdrawals and transfers, citing “extreme market conditions.”  As of May, the firm had more than $8 billion lent out to clients and almost $12 billion in assets under management.  Bitcoin and other tokens plunged, with the world’s biggest digital coin falling to lows not seen since December 2020.  Global stock markets are falling sharply after May’s U.S. inflation print reignited fears that central banks will be forced into aggressive monetary policy tightening.  The U.S. 2-year Treasury rate hit its highest level since 2007 on Monday morning and edged closer to an inversion with the benchmark 10-year rate – seen by many as a sign of an impending recession.  “While [the Fed] can’t sit there and say their job is to end job creation for the moment, that is basically what they need to do if they are going to get inflation back under control now,” TD Securities’ Richard Kelly said.  Treasury yields rose in early Monday trading, with the 10-year at 3.23% and the 10-year rising to 2.25.  Unfortutually, the 5-year is inverted at 3.37 while the 2-year rose sharply at 3.19%.

The log jam broke after the Friday CPI number that showed inflation continued to rise, bringing out the bears and igniting uncertainty for the week ahead.  We have a light day on the earnings and economic calendar, leaving us to ponder will the PPI number Tuesday improve or add to the inflation pressures.  As a result, anything is possible so expect some wild and challenging price action today.  With bond yields rising, speculation is growing that the FOMC may act more aggressively on Wednesday with more than a 50 basis point rate increase.  Markets around the world are under pressure, but the big question for today is whether the May lows will hold as price support to create a possible double bottom?  So, stay focused and be prepared for just about anything.

Trade Wisely,

Doug

Choppy Price Action

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Choppy Price Action

Wednesday was another morning gap, then reversal, as we flip-flop in the frustrating choppy price action on light volume waiting on the Friday CPI.  The intraday whipsaws favor experienced day traders and high-frequency firms but only serve’s to chop up the accounts of most retail traders.  The indexes have moved hundreds of points over the last few days but ultimately remain stuck in the same trading range.  So, I guess we can’t be all that surprised that today is beginning to shape up for more of the same.  Perhaps the CPI numbers can give us some direction.

Asian markets were mostly lower overnight as new pandemic rules in Shanghai dampened sentiment.  European markets trade in the red this morning as they wait for an ECB decision.  However, in another intentionally inspired overnight gap, U.S. futures point to a bullish open to reverse yesterday’s selling ahead of Jobless Claims. 

Economic Calendar

Earnings Calendar

The Thursday earnings calendar is pretty light, with less than 20 companies confirmed.  However, notable reports include JG, BILI, HOFT, LAKE, NIO, RENT, SIG, SFIX, & MTN.

News & Technicals’

Bosses of major fintech players sounded the alarm about deteriorating macroeconomic conditions at the Money 20/20 Europe trade show.  John Collison, the co-founder of online payments firm Stripe, said he was unsure if the company could still justify its $95 billion valuation given the current economic climate.  Zopa, a digital bank based in Britain, suggested it was less likely to meet its target of going public by the end of 2022.  This week, the Biden administration proposed new standards for its program to build a national network of 500,000 electric vehicle charging stations by 2030.  Officials said the proposal would help establish the groundwork for states to build charging station projects accessible to all drivers regardless of the location, EV brand, or charging company.  Earlier this year, the White House introduced a plan to allocate $5 billion to states to fund EV chargers during the next five years.  On Wednesday, the top U.S. securities regulator, Gary Gensler, proposed rule changes to transform how Wall Street handles retail stock trades after the meme stock mania raised questions last year.  The plan would require trading firms to directly compete to execute trades from retail investors to boost competition.  In addition, Gensler said the new SEC rules would mandate market makers disclose more data around the fees these firms earn and the timing of trades for the benefit of investors.  The Quad countries want to jointly monitor the movements of ships and submarines in the Indo-Pacific using satellites, a move analysts warn could potentially lead to the region’s militarization.  “While the Quad as of now is not a security organization, it has the potential to quickly metamorphose into one,” retired Maj. Gen. Dhruv Katoch of the Indian Army told CNBC.  The initiative’s military nature is also underlined by the program being driven by the respective navies of the four participating countries — the U.S., Australia, Japan, and India.  The initiative will also track “dark shipping” in the Indo-Pacific.  Treasury yields slipped just one basis point in early Thursday trading, with the 10-year at 3.02% and the 30-year at 3.16%.

The trading so far this week has been a morning gap followed quickly by a strong reversal, then choppy price action on weak volume.  Though we have moved hundreds of points over the last 3-days, nothing has changed as the indexes remain locked between the highs and lows of the range.  So, it should be no surprise we have another institutionally inspired gap setting up this morning and likely another day of frustrating chop as we wait on the Friday CPI.  Expect volatile price action with a PPI reading next week and a Fed interest rate increase, but perhaps we will have a market direction.

Trade Wisely,

Doug