Uncertain Low-Volume Chop

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Uncertain Low-Volume Chop

The bears displayed a slight upper hand yesterday, reacting negatively near price and technical resistance levels on uncertain low-risk chop. The price action produced some bearish some evening star-type patterns on the index charts by the close.  Currency fluctuations and a persistent 2/10 bond inversion suggest recession and filling traders and investors with uncertainty as we wait on CPI and the beginning of earnings season.  As we wait, expect more of the same chop but be ready for the possibility of significant price swings that low-volume conditions can create.  So, as Wednesday begins a slot of possible emotion-filled market-moving data, plan your risk carefully.

Asian market mainly closed lower overnight, with Japan leading the way down 1.77%.  The risk-off sentiment also has bearish effects on European markets this morning, trading in the red across the board.  U.S. futures point to a bearish gap down open as the dollar surges higher, and the 2/10 bond inversion weighs on investor sentiment while we wait on the CPI before the bell Wednesday morning.  Buckle up for another day of uncertainty.

Economic Calendar

Earnings Calendar

On the Tuesday earnings calendar, we have just four confirmed reports.  Notable reports include PEP, ANGO, and AMX,

News & Technicals’

Fears of a recession have grown in recent weeks due to rising uncertainty over the bloc’s energy supply, with Russia threatening to reduce gas flows to Germany and the broader continent.  Russia temporarily suspended gas deliveries via the Nord Stream 1 pipeline for annual summer maintenance works on Monday.  As a result, the Euro teeters on the brink of parity with the U.S. dollar, creating considerable fluctuation in currency markets.  The bankruptcy filing from Three Arrows Capital (3AC) triggered a downward spiral that wrapped in many crypto investors.  The hedge fund failed to meet margin calls from its lenders.  “3AC was supposed to be the adult in the room,” said Nik Bhatia, finance and business economics professor at the University of Southern California.  Billionaire investor William Ackman, who had raised $4 billion in the biggest-ever special purpose acquisition company (SPAC), told investors he would be returning the sum after failing to find a suitable target company to take the public through a merger.  The development is a major setback for the prominent hedge fund manager who had initially planned for the SPAC to take a stake in Universal Music Group last year when these investment vehicles were all the rage on Wall Street.  PepsiCo beat on the top and bottom line this morning, raising its revenue outlook with sales and topping expectations.  Treasury yields dipped in early Tuesday trading, with the 10-year declining to 2.92% and the 30-year slipping to 3.12%.  Unfortunately, the 2-year remains inverted over the 5-year and 10-year bonds continuing to signal recession.

Monday’s market price action was about as expected as the uncertainty kept the market locked in an uncertain low-volume chop.  The bears seemed to end the day with a little edge leaving behind some evening star-type patterns at or near price resistance.  Although it appears that we will see a bearish morning gap following through to the downside this morning, it would not be a surprise to see the choppy price conditions continue after the open as we wait on the CPI and the beginning of the earnings season.  On the bright side, the T2122 indicator is once again indicating we are nearing a short-term oversold condition, but it would be hard to imagine an enthusiastic relief rally ahead of the uncertainties the market faces.  However, stranger things have happened, and I would not rule out the possibility of anything in this low-volume environment.   

Trade Wisely,

Doug

Calm Before the Storm

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The good news is that the low-volume chop is likely coming to an end, but this calm before the storm could prove equally challenging for traders.  Uncertainty about what comes next will play a significant role in the Monday and Tuesday market as we wait for CPI, PPI, Retails Sales and the big bank reports to kick off on Thursday.  According to the Fed and many talking heads, the consumer is in great shape!  We will soon find out if this is true or if earnings prove this to be another “transitory” tall tale. 

Asian markets closed mostly lower overnight, with the tech-heavy Hang Seng index leading the selling down 2.77%.  Across the pond, as Europe’s natural gas supplies shut down, their markets trade red across the board this morning.  As we wait for a big week of market-moving economic reports and the beginning of the earnings season, U.S. futures point to a bearish open with the uncertainty of what lies ahead. 

Economic Calendar

Earnings Calendar

The official kick-off of 3rd quarter earnings is Thursday, but we will have a few as we build-up to the big bank reports.  Notable reports include AZZ< PSMT & VOXX.

News & Technicals’

Operator Nord Stream AG confirmed the maintenance works, which are scheduled to run from Monday through to July 21, got underway as planned on Monday morning.  As a result, Russian gas flows to Germany are expected to drop to zero later in the day.  Klaus Mueller, the head of Germany’s energy regulator, believes that the Kremlin may continue to throttle Europe’s energy supplies beyond the scheduled end of the maintenance works.  Johnson formally resigned as leader of the Conservative Party on Thursday but said he would stay in Downing Street until a successor was chosen.  The prime minister’s ousting coincides with a particularly perilous period for the U.K. economy.  Inflation hit a new 40-year high of 9.1% in May, and the country is facing a cost of living crisis.  “The immediate outlook is likely to hinge on whether Johnson manages to stay on for the next two months – in which case markets risk a period of additional volatility going into the summer,” AXA IM’s Adegbembo said.  Shares of the company fell nearly 9% in the U.S. premarket before paring some losses to trade around 7% lower.  Musk’s attorney notified Twitter’s board on Friday that he wanted to cancel the deal.  Musk on Monday posted a meme mocking Twitter management over the botched deal.  “They said I couldn’t buy Twitter.  Then they wouldn’t disclose bot info.  Now they want to force me to buy Twitter in court.  Now they have to disclose bot info in court,” the meme read.  Bret Taylor, Twitter’s chairman, said he intends to see the deal through and said the company plans to take legal action against Musk.  If Twitter files a lawsuit against Musk, the parties will likely face a long legal battle ahead.  Chinese manufacturers are starting to see demand for consumer goods in developed economies tail off after a strong rebound from pandemic shocks.  Spot ocean freight rates between China and major U.S. and European markets are falling as consumer demand retreats.  Goods demand is “normalizing,” leading to significant global growth and slow trade but not quite a recession yet.  Treasury yields eased slightly in the early Monday trading, with the 10-year dipping to 3.07% and the 30-year slipped to 3.24%. 

Uncertainty is likely in abundance in Monday and Tuesday’s market, which could be described as the calm before the storm.  Market moving reports such as CPI, PPI, Retail Sales, and the beginning of 3rd quarter earnings with the big banks starting on Thursday morning.  We can expect considerable price volatility peppered with intraday whipsaws and full overnight reversals in the days and weeks ahead.  How have companies performed in the current economic downturn facing a possible recession?  We have been told repeatedly that the consumer is in good shape, but now we find out if that’s true or just another “transitory” moment.  The good news is that the low-volume chop will likely end soon but expect the price action to remain highly challenging as the drama unfolds.

Trade Wisely,

Doug

Nice Relief Rally

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The bulls went to work on Thursday, with the tech giants enjoying the majority of the buy-side activity that finally produced a nice relief rally with very anemic volume.  That raises some uncertainty on the conviction of the rally and if it can produce enough buyer momentum to deal with the technical and price resistance levels above.  With the Employment Situation report before the bell, we will have to see if it continues to inspire the bulls or if the bears will become reengaged at resistance heading into the uncertainty of the weekend.

Asian markets traded mixed to close the week with muted gains and losses in reaction to the shooting death of PM Shinzo Abe.  European markets trade mainly bullish this morning, trying to finish the week on a positive note.  U.S. futures have fluctuated between slightly bullish to slightly bearish as we wait on the Employment Situation report, likely to create some premaket volatility as we finish this short trading week. 

Economic Calendar

Earnings Calendar

We have no confirmed earnings reports for today.

News & Technicals’

Shinzo Abe, the former prime minister of Japan, died Friday after being shot.  The former prime minister was shot while delivering a speech in the city of Nara, near Kyoto.  The incident has sent shockwaves through Japan, where gun violence is extremely rare.  Crypto lender Celsius artificially inflated the price of its digital coin, failed to hedge risk, and engaged in activities that amounted to fraud, a lawsuit alleges.  Former investment manager Jason Stone sued Celsius on Thursday as pressure continues to mount on the firm amid a crash in cryptocurrency prices.  Stone alleges in the lawsuit that Celsius was running a “Ponzi scheme.”  Shares of Twitter fell after markets closed on Thursday following a report from The Washington Post that said billionaire Elon Musk’s deal to buy the company is in jeopardy.  The deal was already uncertain since Musk had demanded more information on the percentage of spam accounts on the platform.  Twitter held a virtual briefing with reporters earlier on Thursday to explain which accounts on its platform are bots or spam accounts.  GameStop has fired its Chief Financial Officer, Mike Recupero.  It’s making staff cuts across departments as part of an effort to turn around the videogame retailer.  CEO Matt Furlong explained the changes in the memo to employees and said the company has to take bold steps as it invests in its digital future.  Johnson resigned as Conservative Party leader on Thursday, finally bowing to immense political pressure after an unprecedented flood of government resignations and a Cabinet revolt.  Political analysts believe most potential party leaders have secretly planned their campaigns for several weeks.  Likely contenders include former Health Secretary Sajid Javid, Finance Minister Nadhim Zahawi, former Finance Minister Rishi Sunak, and Foreign Secretary Liz Truss.  Treasury yields dip slightly in early Friday trading though the 2/10 remains inverted with the 2-year at 3.00%, 10-year at 2.99%, and the 30-year trading at 3.18%.

Thursday finally delivered a nice relief rally but did so on extremely light volume, raising questions of conviction as the indexes approach overhead resistance.  Again, the tech giants lead the rally as traders hope with a dose of speculation that earnings from the tech leaders will perform despite the inflation-stressed consumer.  This morning we will turn our attention to the Employment situation number consensus expects a payroll number to decline.  However, there is still confidence it will not show signs of recession.  We will soon find out with the release before the bell with some fed speaks from John Willams tossed in for good measure.  Finally, the T2122 indicator says we still have room for some upside price action, but the question is will it be enough to overcome the technical and price resistance levels as we slide into the weekend?  So, get ready; the show is about to begin!

Trade Wisley,

Doug

Volatile Range-Bound Chop

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Volatile Range-Bound Chop

Though the last several days of trading have ended on a positive note, the index charts tell the real story of a data-driven volatile range-bound chop.  With ADP, International Trade, Jobless Claims, and Petroleum numbers just around the corner, we can likely expect more of the same today.  The T2122 indicator favors a relief rally, but the overhead, technical and downtrend resistance remains a substantial obstacle to overcome.  As you plan forward, remember the Employment Situation number Friday before the bell consensus expects to show a decline. 

Asia markets closed green across the board with muted results as they reacted to the Fed minutes indicating more rate increases on the way.  European markets trade higher this morning in what seems a celebration that Prime Minister Boris Johnson is expected to resign.   Ahead of several potential market-moving economic reports, the U.S. futures point to a bullish open despite the 2/10 bond inversion suggesting recession. 

Economic Calendar

Earnings Calendar

As usual, Thursday is the week’s most significant day of earnings reports, but it’s still a pretty light day as we move toward the beginning of the 3rd quarter season next week.  Notable reports include HELE, LEVI, and WDFC.

News & Technicals’

U.K. Prime Minister Boris Johnson is expected to resign on Thursday after more than 50 members of parliament resign from his government within 48 hours.  A Downing Street spokesperson told NBC News that Johnson would make a statement on Thursday, and Sky News reported that it would take place around midday London time.  A Sky News tally put the total number of government departures at 59 as of 10 a.m. London time.  Federal Reserve officials at their June meeting said another interest rate increase of 50 or 75 basis points is likely at the July meeting, according to minutes released Wednesday.  Policymakers “recognized the possibility that an even more restrictive stance could be appropriate if elevated inflation pressures were to persist,” the document said.  The prospect of an economic slowdown also casts a specter of doubt over whether the European Central Bank can tighten monetary policy sufficiently to rein in record-high inflation.  Deutsche Bank suggested that the euro could fall into the $0.95-0.97 range if “Europe and the U.S. find themselves slip-sliding into a (deeper) recession in Q3 while the Fed is still hiking rates.”  The American Gaming Association says illegal operators are a “serious threat.”  The industry trade group asks Attorney General Merrick Garland and the Department of Justice to enforce existing laws.  FanDuel’s CEO says unregulated; offshore sites have an unfair advantage because they don’t pay state and local taxes and don’t invest in compliance or lobbying for the expansion of sports gambling in the U.S.  Treasury yields increased in early Thursday trading with the 2/10 inverted suggesting recession.  The 2-year rose to 3.01%, the 10-year stood at 2.96%, and the 30-year climbed to 3.14% on Thursday morning. 

With a data-filled day, price action displayed uncertainty with a volatile range-bound chop that resembled the excitement of watching grass grow.   However, the bulls did mount a late-day rally, with the tech giants enjoying the majority of buying activity.  Downtrends, technical, and overhead price resistance remain the challenge for the bulls, while the economic data and an aggressive Fed keep the bears active.  Unfortunately, we may have to wait until the beginning of the earnings season for this logjam to break even though the T2122 indicator favors an upside move.   In addition, traders can expect another dose of volatility with ADP, International Trade, Jobless Claims, and Petroleum Numbers just around the corner.   If that’s not enough, be prepared for the Employment situation number Friday morning before the bell. 

Trade Wisely,

Doug

Recession Fears

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Recession Fears

Though reports sparked recession fears that reversed Friday’s rally, the bullish buyers in big tech-inspired defense of the recent market lows.  However, one day does not make a trend, so the question is, can they find some follow-through bullish energy today?  Facing a possible 2/10 bond yield inversion and reading on Factory Orders later this morning with substantial overhead resistance and downtrends adding to the uncertainty of the day.  Traders should also consider the possibility of a choppy range-bound environment as we wait for the earnings season to begin. 

Asian markets struggled while we slept as China pandemic concerns reemerged, triggering selling across the board.  However, European markets are in rally mode this morning, with the FTSE leading the way, up 1.72%.  Interestingly the U.S. futures seem to be taking a wait-and-see approach this morning, currently flat to slightly bearish ahead of the Factory Orders report and watching for a possible bond yield inversion.

Economic Calendar

Earnings Calendar

We are currently in a slow period of earnings waiting on the 3rd quarter earnings season to begin later next week.  Notables for today include SAR and SLP.

News & Technicals’

On Tuesday, Voyager commenced bankruptcy proceedings in the U.S. Bankruptcy Court of the Southern District of New York.  The company suffered huge losses from its exposure to crypto hedge fund Three Arrows Capital, which went bust last week.  Sam Bankman-Fried’s Alameda Research is listed as Voyager’s largest creditor, with an unsecured claim of $75 million.  U.K. Prime Minister Boris Johnson’s leadership is hanging by a thread after resigning two of his most high-profile ministers and several other top officials and ministerial aides in the last 24 hours.  British Finance Minister Rishi Sunak and Health Secretary Sajid Javid resigned Tuesday in protest against Johnson’s leadership.  But despite calls to resign, the prime minister shows no signs of being ready to stand down.  Instead, he reshuffled his ministerial team last night to fill the vacancies created by the shock resignations.  Sales contracts for Manhattan apartments plunged by nearly a third in June as the city’s scorching real-estate market started to cool.  “The gradually slowing sales market manifests in all boroughs and at all price points throughout the city,” one industry figure said.  Prices haven’t started falling yet — at least not broadly.  But brokers say buyer attendance at open houses and multiple bids have all but evaporated.  Washington leaders on both sides of the aisle acknowledge Social Security needs to be fixed before it cannot pay full benefits in 13 years.  While Democrats want to raise taxes on high earners, Republicans are staunchly opposed to those proposals.  “To get real progress, it’s going to require people sitting across the table from each other,” one expert says.  Treasury yields increased in early Wednesday trading, with the 2-year at 2.83%, the 10-year at 2.83%, and the 30-year trading at 3.06%.  Economists closely watch the 2/10 inversion. 

Traders that picked up long positions on last Friday’s rally felt the sting of a punishing reversal as trading resumed on Tuesday with recession fears growing.  After that, however, the bulls went to work defending recent lows, with buyers of big tech stocks leading the way.  But, because one day does not make a trend, can the bulls find the energy to follow through with another day of bullishness to test downtrends and overhead resistance levels?  Today we will get the latest read on the Factory Orders and expect the possible 2/10 bond yield inversion also to be a subject of uncertainty for the day.  As we wait on the beginning of 3rd quarter earnings, be prepared for possible downward earnings revisions and a choppy consolidation that could occur in the index charts as we wait. 

Trade Wisely,

Doug

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