Igniting Uncertainty

by
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

by
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

Frustrating Chop Zone

by
Frustrating Chop Zone

The wide-ranging frustrating chop zone continues with a gap down open met with a low volume rally to keep us guessing as to what comes next.  With the Fed GDP tracker hinting at recession, a global growth downgrade, and a new record high of $4.95 a gallon gas price, the entire world is waiting for the read on CPI Friday morning.  Today we have Mortgage Applications, the Petroleum Status Report, and a rising 10-year bond auction with just enough earnings reports to keep traders on their toes.  Can the bulls follow through, breaking the chop zone, or will the bears reengage to keep the chop zone active?  We will soon find out.

Asian markets surged higher overnight, with the very volatile HSI leading up 2.24% at the close.  However, European markets see red across the board after Credit Suisse warned of a likely earnings miss next quarter.  U.S. futures point to a bearish open as the morning reversals continue as we wait on the Friday CPI.  Prepare for another day of weak volume price volatility where anything is possible.

Economic Calendar

Earnings Calendar

We have less than 20 confirmed reports on the Wednesday earnings calendar, with many of them very small-cap companies.  Notable reports include ABM, CPB, DAKT, FIVE, GEF, JILL, OLLI, STRM, THO, & VRA.

News & Technicals’

The Atlanta Federal Reserve’s GDPNow tracker points to an annualized gain of just 0.9% for the second quarter, down from an estimated 1.3% increase less than a week ago.  With first-quarter growth down 1.5%, a second consecutive quarter of negative growth meets a rule-of-thumb definition for recession.  The National Bureau of Economic Research, the official arbiter, says a recession can include two straight negative GDP prints, but that’s not necessarily the case.  The European Union in late May moved to impose an oil embargo on Russia after agreeing the previous month to also stop coal purchases from the country.  The bloc has been heavily dependent on Russian fossil fuels, and cutting some of these supplies overnight will have a significant economic impact.  Credit Suisse said despite the trading revenues benefiting from the spike in volatility, the impact of these conditions, combined with “continued low levels of capital markets issuance” and widening credit spreads, have “depressed the financial performance” of the investment bank in April and May.  This is “likely to lead to a loss for this division and a loss for the Group in the second quarter of 2022,” the trading update said.  While inflation for the 19-member euro area hit another record high in May, a rate hike would only come in July as the ECB first needs to formally end its net asset purchases, according to its forward guidance.  The ECB will also publish new staff projections for growth and inflation.  And market participants are likely to closely monitor the 2024 inflation print as this constitutes the ECB’s medium-term price target.  Cryptocurrencies are a “threat to the safety of our payment schemes,” Anne Boden, CEO of U.K. digital bank Starling, warned Tuesday.  Regulators are concerned about the financial system becoming more entwined with the volatile world of crypto.  Roughly $400 billion has been erased from the combined value of all cryptocurrencies in the past month.  Treasury yields traded higher early Wednesday, with the 10-year pricing at 3.01% and the 30-year moving to 3.15%.

The indexes remain stuck in a frustrating chop zone with just two more trading days until we get a read on inflation that may provide us a directional resolution.  Though the bulls managed a mighty recovery, printing some bullish engulfing patterns yesterday, the volume was noticeably weak and possibly untrustworthy signals.  Overhead resistance levels remain intact, much to the disappointment of the bulls.  In addition, global growth received a downgraded yesterday, and the Fed’s GDP tracker suggests the U.S. is on the brink of recession.  Oil and gas continue to trend higher as we hit another record high in the national gas price of $4.95.  Though some talking heads are trying to make light of the rising energy prices, the consumer is forced to make some tough spending decisions that are not likely to bode well for 2nd quarter earnings results.  I suspect we have a rough summer of trading ahead of us!

Trade Wisely,

Doug

Pop and Drop

by
Pop and Drop

We kicked off Monday with a big gap up that turned out to be a disappointing pop and drop for traders that rushed in buy at the open.  This morning with the futures suggesting a gap down, could we see another intraday reversal after testing the price support of the wide-rangeing chop zone?  Your guess is as good as mine!  With the national average gas price hitting a new record high of $4.92, the insidious tax of inflation naturally dominates the majority of the market conversation.  Friday’s CPI will likely keep traders guessing and price action challenging as we wait.

During the night, Australia announced a 50 basis rate hike which was more than forecast, creating mixed results for Asian markets.  European markets trade mainly lower this morning as inflation worries keep the bear active.  Ahead of trade numbers and earnings results, the U.S. futures point to a lower open to test the support of the chop zone.  The big question is will the bulls find the energy to defend, or will the bears fight to resume control?

Economic Calendar

Earnings Calendar

The Tuesday earnings calendar has just under 20 companies listed, with only about a dozen confirmed reports.  Notable reports include ASO, CASY, CHS, CBRL, PLAY, GIII, SJM, SOL, UNFI & VRNT.

News & Technical’s

Sens. Cynthia Lummis and Kirsten Gillibrand said Tuesday that they are ready to debut the first major attempt from Capitol Hill to create a regulatory framework for crypto.  The Lummis-Gillibrand bill, the product of months of Capitol Hill collaboration, amounts to a regulatory overhaul that would classify the vast majority of digital assets as commodities.  The Responsible Financial Innovation Act would empower the Commodity Futures Trading Commission to regulate most existing digital assets.  Tech companies including Amazon, Google, Salesforce, and Uber are urging the Department of Homeland Security to revise its aging out policies for children of high-skilled visa holders.  They point to the more than 200,000 children who have grown up in the U.S. while their parents held visas, including the high-skilled H1-B visa that’s particularly common in the tech industry.  Once those children turn 21, they must apply for a green card, a process that can drag on and even force some to leave in the interim.  Kohl’s said it has entered into exclusive negotiations with retail holding company Franchise Group, proposing to buy the retailer for $60 per share.  Such a price tag would value Kohls at roughly $8 billion.  According to a person familiar with the matter, Franchise Group is working with Oak Street Real Estate Capital to finance the deal mostly through real estate.  Monday’s vote saw Johnson win the backing of most of his Conservative lawmakers, but by a much slimmer margin than his supporters had hoped.  The vote — triggered by his lawmakers amid increasing dissatisfaction with his leadership — resulted in 211 Tory MPs voting in favor of the prime minister while 148 voted against him.  His days are “numbered,” according to Kallum Pickering, a senior economist at Berenberg Bank.  Treasury yields moved slightly lower in early Tuesday trading, with the 10-year slipping to 3.02% and the 30-year dipping to 3.17%.

In the Morning Prep Video, I suggested the possibility of a pop and drop due to the overhead resistance and the short-term overbought condition indicated in the T2122 indicator.  Unfortunately, that turned out to be correct as the wide-ranging choppy consolidation continues.  If you’re a bull, you should note that yesterday’s selling did nothing to relieve the overbought condition, and the VIX continues to hover near 25 handles.  Today we have the International Trade in Goods report before the bell, but the entire world is mainly concerned about the pending read on inflation Friday morning.  In a move to battle inflation, Australia announced a rate hike of 50 basis points, which was higher than their previous forecast.  I suspect the price action will remain challenging as we wait and fret over what comes next. 

Trade Wisley,

Doug

Choppy Consolidation Range

by

Friday proved to be just another day in the wide, choppy consolidation range, with the bears taking their turn at the helm.  I suspect we will have a challenging summer of price action, as many big investment banks have warned.  With key inflation data coming on Friday, bond yields are rising this morning, and I think the Fed members have been clear that the Fed put is no longer there to prop up the market.  So, as we push higher this morning, remember to respect overhead resistance where the bears may be building defenses.

Asian markets traded mostly higher as China relaxed lockdown restrictions, as Hong Kong surged by 2.71%.  European markets trade green across the board this morning but keeping a close eye on inflation data later this week.  With a light day on the Earnings and Economic calendars, the bulls are back on the job this morning, pointing to a gap open as the choppy range-bound trading continues.

Economic Calendar

Earnings Calendar

We have a light day with just 11 confirmed earnings reports to kick off the new week of trading.  Notable reports include COUP, HQY, NGL & SAIC.

New & Technicals’

According to Morgan Stanley co-President Ted Pick, global markets are beginning a fundamental shift after a 15-year period defined by low interest rates and cheap corporate debt.  The transition from the economic conditions that followed the 2008 financial crisis and whatever comes next will take “12, 18, 24 months” to unfold, he said last week at a New York financial conference.  However, pick said that out of the ashes of this transition period, a new business cycle will emerge.  The U.K.’s Prime Minister Boris Johnson will face a vote of confidence later on Monday amid increasing dissatisfaction with his leadership.  To trigger a vote of confidence, 15% of Conservative lawmakers (or 54 of the current 360 Tory MPs) are required to write letters to Graham Brady, chairman of the 1922 Committee, which oversees the party’s leadership challenges.  On Monday, Brady announced that the threshold had been exceeded.  According to official data, after a surge of omicron cases across the country since March, the nationwide daily Covid case count has fallen to below 50.  “Our high-frequency trackers suggest that barring another severe Covid resurgence and related lockdowns, mobility, construction and ports operation could recover to pre-lockdown levels in around one month,” Goldman Sachs China Economist Lisheng Wang and a team said in a report Saturday.  In a significant step toward normality, the capital city of Beijing allowed most restaurants to resume in-store dining Monday after a hiatus of about a month.  Amid the fanfare of U.S. President Joe Biden’s new Indo-Pacific strategy, China flew under the radar, focusing instead on growing trade under RCEP.  Consistent with its support of multilateralism and globalization, China is likely to continue promoting the adoption of RCEP, which grants member states market access that IPEF lacks.  Beijing has laid out a blueprint for how Chinese businesses expand trade and find opportunities through RCEP, and Chinese provinces were on board.  Treasury yields moved higher in early Monday trading, with 10-year up to 2.96% and the 30-year trading at 3.11%.

On Friday, the choppy consolidation range continued to challenge and frustrate traders when the bears showed up to end the week on a selling note.  However, with bonds rising ahead of key inflation data at the end of the week, the bulls are back at work in the futures market this morning.  As a result, the VIX fell just slightly below the 25 handles, and the T2122 indicator shows a short-term oversold condition as the new trading week begins.  Though we have a lot of clues that our economy is in decline due to intense inflationary pressures, speculation buying remains remarkably resilient.  Through I expect a push to test the DIA 50-day average, traders should watch the overhead resistance levels for clues of the next bearish attack.  I suspect we still have a very challenging summer ahead of us, as many big investment banks have warned.  Remember, the Fed Put is no longer in place as they raise rates and roll off the balance sheet.

Trade Wisely,

Doug

MSFT Lowered Guidance

by
MSFT Lowered Guidance

Though MSFT lowered guidance, ADP hinted at slowing jobs growth; productivity came in at -7.3, and costs rose 12.6%; the bulls found inspiration to buy as the indexes approached price resistance levels.  With nothing of consequence on the earnings calendar, will the Employment Situation data keep the bulls inspired to close out the week strong?  That’s certainly possible, but we should also watch for the possibility of some profit-taking heading into the weekend.

Asian markets closed Friday mainly higher, with only the tech-heavy Hong Kong exchange down 1.00%.  European markets trade mixed as they cautiously wait on the U.S. jobs data.  U.S. futures, however, see red across the board this morning, ahead of the Employment Situation report, with the Nasdaq leading the selling.  So, buckle up and plan for another dose of price volatility before the bell.

Economic Calendar

Earnings Calendar

Although we have a dozen companies listed on the Friday earnings calendar, we only have one verified report.  The stock is YTRA, trading at $1.97 is not exactly what I would call particularly notable unless you own this leisure company.

News  & Technicals’

Lawmakers in New York just passed a bill to ban certain bitcoin mining operations on carbon-based power sources.  The measure now heads to the desk of Governor Kathy Hochul, who could sign it into law or veto it.  If it passes, it will make New York the first state to ban blockchain technology infrastructure.  There are more than 19,000 cryptocurrencies in existence and dozens of blockchain platforms that exist.  However, several cryptocurrency industry players told CNBC that thousands of digital tokens are likely to collapse while the number of blockchains will also fall over the coming years.  Brad Garlinghouse, CEO of cross-border blockchain payments company Ripple, said there are likely to be “scores” of cryptocurrencies that remain in the future.  Tesla CEO Elon Musk has a “super bad feeling” about the economy and needs to cut about 10% of jobs at the electric carmaker, he said in an email to executives seen by Reuters.  According to its annual SEC filing, Tesla employed almost 100,000 people at the company and its subsidiaries at the end of 2021.  Musk has warned in recent weeks about the risk of a recession, but his email ordering a hiring freeze and staff cuts was the most direct and high-profile message from the head of an automaker.  Turkey’s inflation for May rose by an eye-watering 73.5% year on year, as the country grapples with soaring food and energy costs and President Recep Tayyip Erdogan’s long-running unorthodox strategy on monetary policy.  Food prices in the country of 84 million rose 91.6% year on year, the country’s statistics agency reported, bringing into sharp view the pain that regular consumers face as supply chain problems, rising energy costs, and Russia’s war in Ukraine feed into global inflation.  Economic analysts expect the trajectory of Turkey’s inflation will only get worse.  Treasury yields ticked higher in early Friday trading, with the 10-year trading at 2.94% and the 30-year slightly higher at 3.08%. 

The indexes initially found inspiration to move south after MSFT lowered guidance, but the bulls quickly shrugged off the news, climbing back to the top of the recent range while the QQQ surged to a new weekly high in the last few minutes of trading.  Hints of a slowing jobs numbers, productivity at a -7.3% as labor costs rose 12.6% didn’t seem to matter as traders to buy stocks nearing downtrends and price resistance levels.  Index volumes were low on yesterday’s rally, but the VIX finally made it below 25 handles.  Unfortunately, the T2122 indicator continues to signal a short-term overbought condition suggesting a pullback could begin at any time.  We will see if the Employment Situation number can continue to inspire the bulls or if it’s the bears will find a reason to work as the weekend approaches. 

Trade Wisely,

Doug

Wide-Ranging Chop

by
Wide-Ranging Chop

The bears came out to play yesterday, defending price resistance levels in the index charts but found stubborn bulls willing to defend supports, creating a wide-ranging chop zone.  Though bearish candle patterns were left behind, the price action created more questions than answers, with mixed messages coming from the talking heads.  For the rest of the week, Jobs data will focus on ADP and Jobless Claims today, with the Employment Situation out Friday before the bell.  With more rate increases around the corner, traders should prepare for just about anything in this uncertain market condition.

Overnight Asian market struggled for direction as it reacted to gyrating oil prices.  However, European markets at primarily bullish this morning, with the U.K. market closed as they wait on a decision from OPEC.  U.S. futures point to a bullish open as earings roll out, and we pensively wait on jobs data.  Will it inspire the bulls or the bears?  Your guess is as good as mine!

Economic Calendar

Earnings Calendar

We have just over 20 confirmed earnings reports for Thursday as retail continues as the general theme.  Notable reports include LULU, CVGW, CIEN, COO, DBI, DLTH, HRL, LE, OKTA, TLYS, TTC & ZUMZ.

News & Technicals’

Senior Biden administration officials say that around 560,000 student loan borrowers who attended Corinthian Colleges will soon get their balances cleared.  Formerly one of the largest for-profit education companies, the schools have been accused of predatory and unlawful practices and faced numerous lawsuits.  Oil prices fell in the morning of Asia trading hours.  The Financial Times reported that Saudi Arabia is prepared to raise crude production if Russia’s output significantly falls following European Union sanctions.  EU leaders on Monday agreed to ban 90% of Russian crude by the end of the year as part of the bloc’s sixth sanctions package on Russia since it invaded Ukraine.  That initially sent oil prices up.  Sources told the FT that Saudi Arabia, OPEC’s de facto leader, has not yet seen genuine shortages in the oil markets.  But that situation could change as economies globally reopen.  Two main factors have Dimon worried: So-called quantitative tightening, or QT, is scheduled to begin this month and will ramp up to $95 billion a month in reduced bond holdings.  Dimon’s other significant factor is the Ukraine war and its impact on commodities, including food and fuel.  Oil could hit $150 or $175 a barrel, he said.  “You’d better brace yourself,” Dimon told the roomful of analysts and investors.  “JPMorgan is bracing ourselves, and we will be very conservative with our balance sheet.”  GameStop reported its fiscal first-quarter earnings after the bell on Wednesday.  GameStop has said it plans to launch a non-fungible token (NFT) marketplace by the end of the second quarter.  Treasury yields dipped in early Thursday trading, with the 10-year slipping slightly to 2.92% and the 30-year trading at 3.06%.

Yesterday’s wide-ranging chop left more questions than answers as the indexes with the bears defending resistance levels but found bulls willing to defend price supports.  Although chop can be frustrating for traders, it could be just what the market needs to reduce wild price gyrations.   Unfortuantually, the VIX remains just above the support of 25 handles suggesting there is still a lot of work to do to improve market conditions.  The T2122 indicator is also problematic, still indicating a short-term overbought condition while stock work to hold higher low levels.  That leaves the hit and miss earnings and the economic reports as the possible tie-breakers to market direciton.  Today we have OPEC, ADP, Jobless Claims, Productivity, Factory Orders, and oil and gas numbers to keep us guessing.  Toss in some Fed talk, bond auctions, and several retail earnings reports raising the bar of uncertainty. 

Trade Wisley,

Doug

Bulls Surged

by
Bulls Surged

The bulls surged into the long holiday weekend, stretching the Dow up more than 2500 points in just six trading days.  But, unfortunately, it would appear the high speculation all, or nothing market is here for a while longer, with the VIX closing above 25 handles despite the bullish rush to buy.  This morning we have Case-Shiller, Chicago PMI, Consumer Confidence, and some earnings reports to keep traders guessing what comes next.  In addition, price action is likely to remain challenging as China’s economy struggles and Europe’s inflation continues to surge as the Fed begins quantitative tightening.

Asian markets traded mixed during the night as China’s factory activity slowed and the government faces a funding gap of 6 Trillion yuan.   European markets trade mainly lower this morning as food and energy prices set new record highs of inflation.   U.S. futures are trying to climb off of overnight lows but still point to a gap down open with Brent Crude trading over $123 a barrel. 

Economic Calendar

Earnings Calendar

To kick off a shortened week of trading, we have just under 30 confirmed earnings reports.  Notable reports include CRM, AMBA, PLAN, CHPT, APPS, HPQ, KIRK, NAT, SPWH & VSCO.

News & Technicals’

In May, the Eurozone inflation continued higher, hitting a record high for the seventh month at 8.1%, as food and energy prices surged higher.  French inflation also surpassed expectation in May, rising to 5.8%.  In addition, oil prices jumped after EU leaders reached an agreement late Monday to ban 90% of Russian crude by the end of the year.  The embargo is part of the European Union’s sixth sanctions package on Russia since it invaded Ukraine.  Responding to the measures, Mikhail Ulyanov, Russia’s permanent representative to international organizations in Vienna, said the oil ban negatively reflects the bloc.  “As she rightly said yesterday, #Russia will find other importers,” Ulyanov said via Twitter, referring specifically to European Commission President Ursula von der Leyen.  The Chinese government faces a growing shortfall of cash, analysts say, as they predict an increase in debt to fill the gap.  The analysts did not share specific figures on how much additional debt might be needed.  But they pointed to growing pressure on growth that would require more support from debt.  Nomura estimates a funding gap of about 6 trillion yuan ($895.52 billion) — roughly 2.5 trillion yuan in decreased revenue due to tax refunds and weaker economic production, and another 3.5 trillion yuan of lost land sales revenue.  Federal Reserve Governor Christopher Waller said Monday he expects 50 basis point interest rate hikes to continue.  Federal Reserve Governor Christopher Waller said Monday he expects 50 basis point interest rate hikes to continue.  Waller added that he thinks the Fed can raise rates and tamp down demand without causing a severe economic downturn.  Treasury yields rose in early Tuesday trading, with the 10-year trading up to 2.80% and the 30-year rising to 3.007%. 

The bulls surged into the holiday weekend, with the Dow closing up more the 2500 points from the low in just six trading days.  The VIX, however, closed above 25 handles, suggesting the extended relief rally still has a lot of work to do before price volatility calms down.  Moreover, the T2122 indicator also warns of a short-term overbought condition suggesting a pullback could be just around the corner.  So, the big question is, can the bulls defend the recent market lows by putting in a higher low to raise hope of an uptrend?  With quantitative tightening beginning and the Fed expected to raise rates by another 50 basis points in just over a week, the bulls will have their work cut out for them as food and energy prices soar.  Though it may be a short trading week, I expect it’s likely to remain very challenging.

Trade Wisely,

Doug

Discount Retailers Raise Hopes

by
Discount Retailers

The bulls triggered a short squeeze on Thursday after better than expected results from discount retailers  DG and DLTR raised hopes of a strong consumer.  Volume was, however, below average, and the negative GDP hints at a slowing economy with more rate hikes from the Fed coming next month.  Before the bell today, we read on International Trade and Personal Incomes, followed by Consumer Sentiment numbers shortly after.  With significant technical and price resistance above, can the bulls follow through as we head into the uncertainty of a 3-day weekend, or will profit-takers finish this wild week of price action?  We will soon find out!

During the night, Asian markets closed their trading week with a relief rally led by Hong Kong, up 2.89%.  This morning, European markets see green across the board, working to close the week strong.  With a light day of earnings events and potentially market-moving economic data ahead, U.S. futures suggest a muted but bullish open well off of overnight highs.

Economic Calendar

Earnings Calendar

We have a light day on the Friday earnings calendar with only nine verified reports.  Notable reports include BIG, HIBB & PDD.

News & Technicals’

Dollar Tree and Dollar General boosted their outlook for the year as shoppers squeezed by inflation seek lower prices.  The companies see people buying a different merchandise mix than they were a year ago when they had stimulus dollars in their pockets.  The dollar chains are also expanding while strategizing about ways to manage higher costs.  According to Realtor.com, the supply of homes for sale jumped 9% last week compared with the same week one year ago.  Real estate brokerage Redfin also reported that new listings rose nearly twice as fast in the four weeks ended May 15 as they did during the same period a year ago.  According to the National Association of Realtors, pending home sales, a measure of signed contracts on existing homes, dropped nearly 4% in April, month to month and were down just over 9% from April 2021.  As economic conditions continue to tighten, a Microsoft executive in charge of Office is telling employees to be more cautious when opening up new roles.  Microsoft’s Office and Windows businesses are growing, but they’re not keeping up with the Azure cloud business.  Two weeks ago, Microsoft told employees it would increase part of their compensation.  Executives from the blockchain and cryptocurrency industry told CNBC that the recent crash in the digital coin market should help get rid of “bad actors.”  Billions of dollars of value have been wiped off the cryptocurrency market in the last few weeks, driven by a sell-off in stocks and the collapse of algorithmic stablecoin terraUSD.  The executives said that the market shakeout was necessary and called it “healthy.”  Treasury yields see little movement in early Friday trading, with the 10-year flat at 2.76% and the 30-year slightly higher at 2.99%.

Better than expected results from discount retailers DG and DLTR raised hopes of a stronger consumer triggering a short squeeze to test index resistance levels with lower than average volume.  We were overdue for a relief rally, but with the Dow already up more than 2000 points off the lows, the T2122 indicator suggests a short-term overbought condition.  Traders choose to ignore the declining Durable Goods and negative GDP, so it will be interesting to see the reaction to International Trade, Personal Incomes, and Outlays numbers before the bell.  We will also take the temperature of the consumer with sentiment numbers at 10:00 AM Eastern.  Can the bulls keep the rally going, or could we see some profit-taking heading into the uncertainty of a 3-day weekend?  Your guess is as good as mine, but the price action will remain challenging in all likelihood. 

Trade Wisely,

Doug

The Bulls Had a Good Day

by
The Bulls Had a Good Day

The bulls had a good day on Wednesday, reliving selling pressure despite the Durable Goods miss and the hawkish Fed minutes confirming more rate hikes are on the way.  This morning we face a big round of retail earnings results and a reading on GDP and Jobless Claims.  The NVDA miss could slightly dampen the bullish spirits in the Nasdaq but remember to respect overhead resistance levels in a market downtrend as the location of potential bear attacks.  With a 3-day weekend approaching, it would not be odd to see traders reducing risk due to the prolonged weekend uncertainty.

While we slept, Asian markets closed mostly lower after the Bank of Korea announced its second straight rate hike.  However, European markets hold modest gains across the board in a cautious morning session.  With potential market-moving economic reports and a busy day of retail earnings, U.S. futures work to extend the relief rally pointing to a bullish open.

Economic Calendar

Earnings Calendar

We have about 50 companies listed on the Thursday earnings calendar, with less than 30 confirmed.  Notable reports include DG, BABA, AEO, AMWD, ADSK, BIDU, BZUN, BRC, BKE, BURL, DLTR, FTCH, GPS, GCO, GLNG, IQ, JACK, M, MDT, RRGB, RY, TITN, TD, UTLA, VMW, WDAY & ZS.

News & Technicals’

Fed minutes released Wednesday indicated that officials are prepared to move ahead with multiple 50 basis points interest rate increases.  In addition, the Federal Open Market Committee said the policy might have to move past “neutral” and into “restrictive” territory.  Nevertheless, the minutes indicate that members are hopeful they can bring down inflation and are concerned about financial stability risks.  In addition, global health concerns loomed over the World Economic Forum once again this year, but business leaders say they are not worried about a recent monkeypox outbreak.  “Is it a Covid-style risk?  No, I don’t believe it is,” Jeremy Farrar, director of global health charity Wellcome, told CNBC.  As of Wednesday, at least 237 confirmed and suspected cases of the disease have been reported globally — double the number recorded at the start of the conference Monday.  In a filing Wednesday, Elon Musk noted that his personal financial commitment to the Twitter deal is now $33.5 billion.  Musk reiterated his commitment to completing the $44 billion deal and is working on additional financing.  Apple is raising pay for corporate and retail workers in response to market conditions, the company said Wednesday.  Apple will increase the starting wage for its retail employees in the U.S. to $22 an hour.   Premier Li Keqiang said during a nationwide videoconference Wednesday, according to a CNBC translation of a Chinese-language state media report.  On Wednesday, a state media news broadcast showed large conference rooms of people from different provinces tuning into the meeting.  There hasn’t been such a meeting of this scale for years, and it’s unprecedented for one meeting to address so many levels of government at once, said Zong Liang, chief researcher at the Bank of China.  Treasury yields trade primarily flat early Thursday, with the 10-year dipping to 2.74% and the 30-year rising slightly to 2.97%.

Although Durable goods orders fell more than expected and the FOMC minutes confirmed more rate hikes are on the way, the bulls had a good day reliving selling pressure as indexes lifted toward resistance levels.  An NVDA earnings miss may take some of the wind out of the Nasdaq sails, but futures are putting on a brave face ahead of the GDP, and Jobless Claims reports.   Traders will also have to deal with our biggest day of earnings reports this week, dominated by struggling retail as consumers curtail spending.  Yesterday’s rally pushed the T2122 indicator near the bearish reversal zone, so keep an eye on and respect overhead resistance levels for possible entrenched bears.  With a 3-day weekend approaching, watch for the possibility of traders reducing risk heading into the uncertainty of the long weekend. 

Trade Wisely,

Doug