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

Frustrating Chop Zone

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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

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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

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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

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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

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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