QQQ Remained Under Pressure

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QQQ Remained Under Pressure

With bond rates risking, the QQQ remained under pressure from the bears while the bulls focused their efforts on the DIA.  So far, the DIA and SPY have successfully held their 50-day averages though the IWM failed to hold, and QQQ looks to violet this crucial technical level at the open today.  This week’s theme will be inflation as we get readings for CPI and PPI, which are both expected to come in hot, clearing a path for an aggressive rate hike by the Fed.  We can hope for the best, but traders should prepare for more challenging volatility in this holiday-shortened week.

Overnight Asian markets closed in the red, with Hong Kong leading the selling down over 3% after the release of surging producer price numbers.  European markets traded mixed this morning with worries about inflation and the intensifying war in Ukraine.  With bond rates rising, inverted U.S. futures point to a flat, slightly bearish open with inflation data just around the corner. 

Economic Calendar

Earnings Calendar

We have just over 20 companies to kick off the short week of trading.  However, there is only PCYO confirmed.

News & Technicals’

Elon Musk informed Twitter on Saturday morning that he would not take the board seat.  However, CEO Parag Agrawal announced publicly on Sunday that Musk remains the largest shareholder of Twitter, and the company will remain open to his input.  Musk’s appointment would have started on April 9, contingent on a background check and formal acceptance.  Nio announced Sunday it would raise the prices for its three SUVs — the ES8, ES6, and EC6 — by 10,000 yuan ($1,572), effective May 10.  A day earlier, on Saturday, Nio said it suspended production due to Covid-related restrictions in the last several weeks that halted production at suppliers’ factories.  Many other electric car companies, from Tesla to Xpeng, have raised prices in the last several weeks.  French leader Emmanuel Macron and his far-right rival, Marine Le Pen, face off in the final vote on April 24.  A flurry of early projections and exit polls showed the incumbent.  Macron came first with 28.1-29.5% of the vote, followed by Le Pen with 23.3-24.4%.  The rising cost of living and the Russia-Ukraine war has been front and center.  Support for Macron had jumped following Russia’s unprovoked invasion of Ukraine and his mediation efforts earlier this year.  Federal Reserve policymakers will try to slow down the economy and subdue inflation.  Higher rates make money costlier and borrowing less appealing.  That, in turn, slows demand to catch up with supply, which has lagged badly throughout the pandemic.  Fed officials also have talked tough on inflation to dampen future expectations.  Potential effects include lower wages, a halt or even a drop in home prices, and a decline in stock market valuations.  Treasury yields continue to be a concern, with the 5-year trading at 2.8154%, the 10-year climbing to 2.7629%, and the 30-year pricing at 2.7629% in early Monday trading.

While the DIA found some bullish price action, the QQQ remained under pressure, with bond rates rising while inverted.  Though the bulls have defended the 50-day support of the DIA and SPY, IWM failed this fundamental psychological level, and the QQQ is likely to follow suit at open today.  Moreover, with news that the war in Ukraine intensified over the weekend, the uncertainty could keep the market on edge in this holiday-shortened week.  Though we have several Fed speakers today, there is not much else providing inspiration today.  However, with hot numbers expected in the CPI on Tuesday and the PPI on Wednesday, traders will should expect considerable volatility in the days ahead.  If that’s not enough to deal with, we will have Retail Sales on Thursday before closing for the Good Friday holiday.  I hope you are rested from the weekend because it could be a challenging 4-days ahead!

Trade Wisely,

Doug

Fed To Fight Inflation

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Fight Inflation

The Fed minutes confirmed the Fed plans to fight inflation aggressively, creating a bit of Wednesday volatility.  The question is, will this prick the bubble of high stock valuations and home prices inflated by all the money printing?  Only time will tell, but one thing seems inevitable, the Fed may have to sacrifice the market growth they have long defended to get the job done.  Today we will hear from James Bullard, that pointed to Fed credibility when asking for a one-point increase in rates last month!  Could we see another dose of price volatility this morning as a result? 

Overnight Asian markets struggled to close the session with red across the board.  However, this morning, European markets are cautiously higher as they monitor the hawkish Fed and Russian aggression.  With Jobless claims and more Fed speak pending, U.S. futures point to modest gains at the open. 

Economic Calendar

Earnings Calendar

The Thursday earnings calendar lists about 40 companies, but many of them remain unconfirmed.  Notable reports include ANGO, APOG, CAG, STZ, NTIC, PSMT & WDFC.

News & Technicals’

Members of the NATO military alliance have been supplying Kyiv with weapons since Russia’s unprovoked invasion of Ukraine in February.  However, this is not enough for Ukraine’s Foreign Affairs Minister, Dmytro Kuleba.  NATO Secretary-General Jens Stoltenberg said Wednesday: “We need to be prepared for the long haul.”  Shell has announced that it will write off between $4 and $5 billion in the value of its assets after pulling out of Russia.  The announcement offers a first glimpse at the potential financial impact to Western oil majors of exiting Russia.  Shell was forced to apologize on March 8 for buying a heavily discounted consignment of Russian oil.  It subsequently announced that it was withdrawing from Russia.  China warned on Thursday it would take strong measures if U.S. House of Representatives Speaker Nancy Pelosi visited Taiwan and said such a visit would severely impact Chinese-U.S. relations, following media reports she would go next week.  The possible visit has not been confirmed by Pelosi’s office or Taiwan’s government, but some Japanese and Taiwanese media reported it would take place after she visits Japan this weekend.  Chinese Foreign Ministry spokesperson Zhao Lijian told reporters that Beijing firmly opposed all forms of official interactions between the United States and Taiwan, and Washington should cancel the trip.  Denim retailer Levi Strauss reported fiscal first-quarter earnings, and revenue topped analysts’ estimates.  The company sold more jeans and T-shirts at higher price points, often directly to customers.  Levi reaffirmed its forecast for fiscal 2022, assuming no significant worsening of inflationary pressures or closures of global economies.  Levi CEO Chip Bergh told CNBC that consumers have yet to trade down for less expensive apparel.  Treasury yields fell slightly in early Thursday trading, with the 5-year dropping to 2.6381%, the 10-year dipping to 2.5659%, and the 30-year slightly lower to 2.6046%.

The confirmation that the Fed plans to fight inflation aggressively in the minutes provides some volatility in an overall bearish day that created lower lows to follow the lower high made on Tuesday.  The good news is the DIA, SPY, and QQQ held above their 50-day averages at the end of the day, providing hope of a bullish defense.  However, with the most hawkish Fed member, James Bullard, set to speak at 9:00 AM this morning, another dose of volatility could be on the way.  Remember the last meeting Bullard was calling for a full 1 point increase in rates, calling it a matter of Fed credibility.  The bond yield inversion also weighs on investors’ minds as Janet Yellen warns of energy and food shortages continuing to pressure inflation.  That said, I would not be surprised to see a bit of a relief rally by the end of the week unless more geopolitical issues arise.

Trade Wisley,

Doug

Hawkish Comments

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Hawkish Comments

The bears came out to play yesterday after hearing the hawkish comments from the Fed that is willing to fight inflation aggressively with swift balance sheet reductions and higher interest rates.  Even with yesterday’s selling, the indexes remain in bullish price patterns, but that could quickly change if the bulls can’t find the energy to defend price supports.  So, after the usual morning push and pull, don’t be surprised if the price action becomes stale and choppy as we wait on the release of the Fed minutes and the volatility it often creates.  As you plan forward into Thursday, keep in mind James Bullard speaks and has in the past pushed for a full point rate increase!

Asian markets closed mainly in the red overnight as treasury yields continue to rise, with tech leading the selling.  However, the inflation-fighting Fed comments and added Russian sanctions have the European markets bearish this morning, with indexes red across the board.  With oil numbers and the Fed minutes ahead, U.S. futures also point to a bearish open, with the tech sector feeling the most pressure.

Economic Calendar

Earnings Calendar

We have just over 20 companies listed on the Wednesday earnings calendar, with the most unconfirmed.  Notable reports include CLIR, LEVI, TLRY, RGP, RPM, SCHN & SMPL.

News & Technicals’

Fed Governor Lael Brainard and San Francisco Fed President Mary Daly spoke Tuesday, emphasizing the central bank’s commitment to fighting inflation through higher interest rates.  “It is paramount to get inflation down,” Brainard said.  Raising rates “is necessary to ensure that again, [you] go to bed at night, you’re not worrying about whether prices will be higher, considerably higher tomorrow,” Daly added.  Twitter said in an SEC filing on Tuesday that Tesla CEO Elon Musk has been buying shares on almost a daily basis since the end of January.  The filing indicates he’s spent $2.64 billion on Twitter stock.  The disclosure came in a 13D filing, confirming that Musk now has an active stake in Twitter.  JetBlue Airways made a $3.6 billion all-cash offer for Spirit Airlines, raising questions about Spirit’s deal to combine with rival discount carrier Frontier Airlines.  The bid comes less than two months after Spirit and Frontier agreed to merge into a discount airline behemoth.  Trading in Spirit shares was halted before the market closed Tuesday after the stock spiked more than 22% to $26.92.  CDC Director Rochelle Walensky said high immunity levels from vaccination, boosters, and prior infection should provide some protection against the omicron BA.2 variant in the US.  BA.2 makes up a growing proportion of variants in the U.S., but new infections are steady.  Hospitalizations have been at their lowest level since 2020.  BA.2 has caused significant outbreaks in Europe and China.  Treasury yields rise on hawkish Fed comments, with the 5-year trading at 2.7635%, the 10-year at 2.6125%, and the 30-year rising to 2.6204% in early Wednesday trading.

The bears found some inspiration yesterday after hearing the hawkish comments from the Fed, which is willing slow the economy to fight inflation aggressively.  However, even with yesterday’s selling, the index patterns held in bullish patterns.  The question now is, will bears have the energy to follow through today breaking price supports, or will the bulls have the tenacity to defend?  Today we have more Fed speakers, and later this afternoon, we could experience an extra dose of volatility at the release of the Fed minutes.  If that’s not enough, one of the most hawkish Fed members, James Bullard, speaks Thursday morning!  So, prepare for a bumpy road ahead as the market comes to terms with the fact the Fed must act to control inflation and will no longer serve as the guarantee of support.

Trade Wisely,

Doug

Bond Yield Inversion

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The price patterns of the indexes remain remarkably bullish despite the bond yield inversion suggesting a recession is around the corner.  We have a relatively light economic and earnings calendar this week, spotted with Fed speak and the release of the minutes on Wednesday.  So, while I’m rooting for a nice week-long restful consolidation, I suspect we will still have challenging price action and a sensitivity to the geopolitical news cycle this week. 

Chinese tech stocks rallied during the night, with the HSI closing up 2% as the real estate crunch worsens.  However, this morning, European markets seem pensive with very modest index moves as more Russian sanction talks evolve.  U.S. futures are also cautious as the inversion of bond yields worries investors.

Economic Calendar

Earnings Calendar

We have just three confirmed reports as we begin the first full week of trading in the 2nd quarter.  Those reports include ATC, INCR & SRAX.

News & Technicals

JPMorgan CEO Jamie Dimon identified three forces that are likely to shape the world over the next several decades: a U.S. economy rebounding from the Covid pandemic, high inflation that will usher in an era of rising rates, and Russia’s invasion of Ukraine and the resulting humanitarian crisis.   “They present completely different circumstances than what we’ve experienced in the past – and their confluence may dramatically increase the risks ahead,” he wrote.  “The war in Ukraine and the sanctions on Russia, at a minimum, will slow the global economy — and it could easily get worse,” Dimon wrote.  That’s because of the uncertainty about how the conflict will conclude and its impact on supply chains, especially those involving energy supplies.  More than 9,000 U.S. flights were delayed over the weekend.  Southwest Airlines was the hardest hit and had started Saturday with a backend technical problem.  In addition, due to storms, air traffic control slowed or paused traffic in Florida on Saturday.  On the drought-stricken land where Pinal County farmers have irrigated crops for thousands of years, Nancy Caywood stopped her pickup truck along an empty canal and pointed to a field of dead alfalfa.  “It’s heart-wrenching,” said Caywood, a third-generation farmer who manages 247 acres an hour outside of Phoenix.  An intensifying drought and declining reservoirs across the Western U.S. prompted the first-ever cuts to Arizona farmers’ water supply from the Colorado River.  Amazon workers at a Staten Island warehouse voted to unionize, the first time that’s happened at one of the company’s U.S. facilities.  The Amazon Labor Union, a new organization, now has to work trying to negotiate a collective bargaining agreement with Amazon.  Tom Kochan, a professor at the MIT Sloan School of Management, said, “Amazon will have to reassess its labor relations strategy.”  Treasury yield inversion continues to be a concern this Monday morning, with the 2-year trading at 2.4384%, the 5-year at 2.5553%, the 10-year ticking up slightly to 2.386%, and the 30-year slightly higher at 2.4499%.

Although the bond yield inversion suggests a recession is around the corner, the index charts continue to hold bullish patterns.  While many of the critical economic metrics point to a slowing economy, businesses continue to hire rapidly.  Unfortunately, commodity prices continue to rise, pressuring the consumer and likely forcing the hand of the Fed to act aggressively in May.  We may learn more about their intentions this week with several Fed speakers and the release of last month’s minutes Wednesday afternoon.  We will also have to keep an eye on China as the real estate crisis worsens despite the government’s effort to mask the economic damage.  Finally, with light economic and earnings calendars this week, expect the market to be sensitive to the geopolitical news cycle.  It would be nice if the price action could rest in consolidation the entire week but don’t be surprised if the last quarter’s volatility spills over to keep us guessing.

Trade Wisely,

Doug

Uncertainty of Russian Promises

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Although the end-of-quarter window dressing continues, the uncertainty of  Russian promises and bond inversion worries eased yesterday’s bullish overextension.  However, with one more day to close the quarter and the President expected to open the strategic reserve for the 3rd time this year, the bulls will likely work hard to close strong.  Jobless Claims and Personal Income and Outlay reports may spark some price volatility before the bell, and with the Employment situation number Friday morning, plan your risk carefully as anything is possible.

Asian markets closed primarily red overnight despite the decline in oil prices due to a disappointing decline in China’s manufacturing.  This morning, European markets have modest declines across the board as Russian pledge uncertainty persists.   We are taking a wait-and-see approach as we wind down this very volatile quarter with pending economic data and not many notable earnings reports to inspire the premarket futures.

Economic Calendar

Earnings Calendar

We have more than 100 companies listed on the earnings calendar, but many are unconfirmed or very small-cap companies.  As a result, the number of notable reports continues to decline, WBA, ARCE, ASTR, BB, BLND, CLSN, DTST, PL & PLSE.

News and Technicals’

Energy analysts expect OPEC+ to stick to its strategy of gradually reopening the taps despite sustained pressure from top consumers for the group to pump more to cool soaring oil prices.  Oil prices have rallied to a near all-time high on concerns about Russia’s supply disruptions after the U.S., and international allies imposed an unprecedented barrage of punitive economic measures against the Kremlin.  Against this backdrop, the U.S. is reportedly considering a plan to cool soaring crude prices by releasing up to 180 million barrels from the country’s strategic petroleum reserve.  Biden is set to give remarks later on Thursday, with multiple outlets reporting that the plan to cool soaring crude prices will involve the release of around 1 million barrels of oil per day for several months.  In a research note Thursday, Goldman Sachs commodity analysts said the reported SPR release would help the oil market toward rebalancing in 2022 but would not resolve its structural deficit.  In addition, Russian President Vladimir Putin feels he was misled by military leaders who did not tell him key details about the botched invasion of Ukraine, newly declassified intelligence shows.  A top White House official said that the failure to tell Putin what was happening has “resulted in persistent tension between Putin and his military leadership,” a top White House official said.  The decision to declassify and release the information is the latest example of the Biden administration’s use of a novel tactic tailor-made for the hybrid warfare age: Acquire top-secret intelligence about Putin’s plans and then tell the whole world about it.  Treasury yields fell in early Thursday trading, with the 10-year declining to 2.3270% and the 30-year dipped slightly to 2.4789%.

Uncertainty of Russian promises and bond yields inversions softened bullish activity yesterday despite steady window dressing to close the quarter strong.  We can expect that effort to continue today as we finish the last trading day of the first quarter.  In addition, oil prices are improving this morning, with the President expected to release more oil from the strategic reserves for the 3rd time this year as OPEC meets to make production decisions.  Finally, we will turn our attention to Jobless claims and Personal Incomes and Outlays reports before the bell.  Although we continue to be quite overextended in the short-term indicators, I would not be surprised to see a substantial effort to the 1st quarter books on a high note.  However, stay focused with the Employment Situation number before the bell on Friday.

Trade Wisely,

Doug

Extraordinary Extension

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Extraordinary Extension

With a considerable dose of hopium, the Russian aggression in Ukraine is ending; the bulls pushed the indexes into an extraordinary extension.  Of course, the end-of-quarter window dressing likely added to the situation as volumes remained unusually low.  Today expect an extra dose of price volatility in the morning session as we react to ADP and GDP numbers.  Traders should watch carefully for a pullback that could begin at any time, and unfortunately, due to the extreme extension, it could become painful for those buying late in the rally.

Overnight Asian markets traded mixed but mostly higher with growing concerns about the weakening yen and the 10% plunge in Evergrande’s care unit.  European markets trade primarily in the red as skepticism grows over the Russian pledges over Ukraine.  With ADP and GDP data coming before the bell, U.S. futures point to modest declines as commodities and oil prices trade higher.

Economic Calendar

Earnings Calendar

On the Wednesday calendar, we have over 70 companies listed, but again, there are many unconfirmed.   Notable reports include AER, RKDA, BNTX, CWCO, FIVE, MSGM, PAYX, PTE, UPN & VNET.

News & Technicals’

Dr. Peter Marks at the Food and Drug Administration said people might need another booster shot in the fall.  Marks also said the U.S. might need to switch to a different vaccine that targets specific variants of Covid.  The FDA on Tuesday approved the fourth dose for people age 50 and older and the fifth dose for specific younger individuals with compromised immune systems.  Wednesday, German Economic Minister Robert Habeck said that the “early warning” measure was the first of three stages and does not yet imply a state intervention to ration gas supplies.  However, Habeck called for consumers and companies to reduce consumption, telling a news conference that “every kilowatt-hour counts,” according to Reuters.  European countries’ dependence on Russian energy exports has been thrust into the spotlight since the Kremlin launched its invasion of Ukraine on Feb. 24.  In addition, investor optimism over the possibility of federal cannabis legalization has contributed to a strong rally in beaten-down pot stocks.  The Alternative Harvest ETF has gained more than 10% in March, and it’s on pace for its best month since February 2021.  On Wednesday, the House Rules Committee is set to hold a hearing on the MORE Act, decriminalizing cannabis at the federal level.  Treasury yields dipped in early Wednesday trading, with the 10-year falling to 2.3707% and the 30-year dipping to 2.4499%.

Tuesday’s market saw an extraordinary extension of the indexes even as volume remained unusually low.  The T2122 indicator closed the day at 99.35 out possible 100 showing an extreme short-term overbought condition.  With the 5-year bond rate inversion over the 10-year, the market continues to show a dangerous willingness to ignore the deteriorating market internals in favor of wild speculation. 
The current market action clears the deck for Fed to begin acting aggressively.  Today we turn our attention to the ADP and GDP economic reports, so prepare for an extra dose of price volatility in the morning session.  Traders should also stay on guard for the potential of a painful pullback beginning at any time due to the short-term extension. 

Trade Wisely,

Doug

Higher on Weak Volume

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Higher on Weak Volume

We began the week with the indexes higher on weak volume as the end-of-quarter window dressing with another surge upward in the final few minutes of the day.  However, price volatility remains uncomfortably high as investors choose to ignore a five and 10-year bond inversion and another record trade deficit.  As a result, the index price pattern remains bullish as they continue to extend the winning streak into the end of the quarter.  With the economic reports report indicating a weakening economy and the yield inversion suggesting a possible recession on the way, be very careful not to overtrade with a fear of missing out.

Asian markets closed mixed but mostly higher as Japan warns of a rapidly weakening yen that hit a 6-year low.   European market sees only green this morning as Ukraine -Russian talks bring high hopes of a resolution to the aggression.  The U.S. futures recovered from early overnight losses to point toward a gap up open ahead of potentially market-moving economic reports.  Be prepared for more challenging price action as we extend.

Economic Calendar

Earnings Calendar

We have between 50 and 60 companies listed on the Tuesday earnings calendar, but quite a few are unconfirmed.  Notable reports include LULU, MU, ASO, CLAM, CHWY, lODE, CONN, ESLT, INFI, KALA, MKC, PRGS, PVH, RH, DTC, SPWH, SNDL, VRNT,& ZVO.

News & Technicals’

“What we want to make very clear to crypto exchanges, financial institutions, individuals, and anyone who may be in a position to help Russia take advantage and evade our sanctions: We will hold you accountable,” Deputy U.S. Treasury Secretary Secretary Secretary Wally Adeyemo told CNBC on Tuesday.  “We will come and find you,” Adeyemo said.  His comments come shortly after the G-7 major economies pledged to ensure the Russian state, elites, proxies, and oligarchs would not be able to leverage digital assets to sidestep the impact of international sanctions.  Speaking to CNBC on Tuesday, Saudi Energy Minister Prince Abdulaziz bin Salman bin Abdulaziz Al Saud said the organization’s very existence depended on the separation of its mission to stabilize oil prices from other geopolitical factors.  Earlier this month, Saudi Arabia and the UAE voted in favor of a U.N. General Assembly resolution urging Russia to abandon the invasion and withdraw all troops.  Prince Abdulaziz said there were other forums through which the Kingdom could voice its opinion on Russia’s actions, which is in line with the global response.  “We are completely against any blackmailing,” Germany’s Finance Minister Christian Lindner told CNBC Monday.  Europe’s dependency on Russian energy has prevented the bloc from imposing an oil embargo on Moscow as part of its broader sanctions on the Kremlin.  This contrasts with a decision from the White House, which has banned Russian oil and gas imports.

Monday proved to be volatile for the markets, but the indexes closed higher on weak volume, ignoring a record trade deficit and the 5-10 bond yield inversion.  It makes me quite uncomfortable as the charts continue to extend as the economic data deteriorates.  That said, the price patterns remain bullish and premarket futures continue to push for higher prints each morning.  I suspect the continued rally results from the end-of-quarter window dressing that I’ve mentioned the last few days.  Watch for and be prepared for the possibility of a big letdown when it’s over.  Also, keep a close eye on the 2-year bonds as they creep higher, suggesting a recession may be just around the corner. 

Trade Wisley,

Doug

Vastly Improved, But

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Vastly Improved

The relief rally of the last two weeks has vastly improved the technicals of the indexes but will it be enough to keep us moving higher.  In the bull’s favor, we have the possibility of the end-of-quarter window dressing as institutions put new investor money to work.   In the bear’s favor, we have a possible risk-off scenario beginning to occur with a bond yield inversion as inflation worries grow.  If that’s not enough to keep traders on edge, then add in a hectic week of possible market-moving economic reports, and we have a recipe for challenging price volatility. 

Asian markets traded mixed and relatively flat as Shanghai went back into partial lockdown.  Across the pond, European markets see green across the board.  However, facing bond inversion fears, International Trade numbers, and a 2-year auction, rising recession fears suggest a mixed open well off the overnight lows.  So, get ready for just about anything as we finish this wildly volatile quarter!

Economic Calendar

Earnings Calendar

To kick off the last four trading days of the 1st quarter, we have more than 30 companies listed on the calendar, with the majority unconfirmed.  Notable reports include AND, AVAH, BITF, PLAY, JEF, TPG & XPEF.

News and Technicals’

The yield on the 5-year Treasury note rose five basis points to 2.6309% at 5:05 a.m.  ET, while the 30-year yield was less than one basis point to 2.5956%.  This is the first time the shorter-dated Treasury yield has risen above the longer-dated U.S. government bond since 2006.  President Joe Biden’s job approval ratings keep falling in his second year in the White House.  Just 40% of Americans approve of the job he is doing, an NBC News survey finds, the lowest rating Biden has seen in his presidency.  Biden’s drop in approval comes as a large majority of Americans continue to say the U.S. is headed in the wrong direction, the poll found.  Since the beginning of March, five cargoes of Russian oil, or about 6 million barrels, have been loaded and are bound for India – set to be discharged in early April, said Matt Smith, lead oil analyst at Kpler.  “This is about half the entire volume discharged last year — a significant uptick,” he told CNBC.  If China also buys oil from Russia – also widely expected to be discounted – it could impact crude prices, analysts said.  “Urals crude from Russia is being offered at record discounts,” the International Energy Agency said on March 17.  Shanghai, a city of 26 million people on the southeastern coast of China, is a hub for finance and international business in the country.  Municipal authorities ordered half of the city to lock down for mass virus testing from Monday to Friday morning.  Shanghai International Port Group, which manages the city’s ports, said in an online statement Monday production units generally maintained 24-hour operations.  President Joe Biden proposed a new 20% minimum billionaire tax.  The “Billionaire Minimum Income Tax” would assess a 20% minimum tax rate on U.S. households worth more than $100 million.  Over half the revenue could come from those worth more than $1 billion.  As the short-term treasury yields begin to invert as investors worry about a recession, the 10-year moved only slightly higher in early Monday trading to trade at 2.5066%, and the 30-year ticked slightly higher to 2.6004%. 

Technically speaking, the last couple week weeks have vastly improved the technicals of the index charts.  However, the sharp rally on meager volume combined with the possible over-extension in the prices in the short-term remains a concern.  On the one hand, due to the end-of-quarter window dressing, we may still see more extension as institutions put new money to work in the market.  But, on the other hand, the yield curve inversion in the 5-and-10 year bonds has the potential to derail bullish plans triggering risk-off conditions in the market.  In addition, we have a hectic week of market-moving economic data to keep traders on edge and price volatility high and challenging to navigate.  Finally, today we have International Trade numbers and the rapidly rising 2-year bond auction to contend with as we slide toward the end of this very volatile first quarter of 2022.

Trade Wisely,

Doug

Durable Goods Orders Decline

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Durable Goods Orders

Though recent market data such as yesterday’s negative durable goods orders hint at a slowing economy, the bulls ignored the data charged forward on Thursday.  Big tech led the way yesterday, surging sharply upward, but new European regulations that may curb their dominance could slow their rally today.  This morning we will get another reading on the already weak Consumer Sentiment and Pending Home Sales.  Plan your risk carefully as we slide into the uncertainty of the weekend with indexes at or near significant price resistance levels.

Asian markets traded mixed overnight, with the volatile HSI leading the selling dropping 2.47% to wrap up their trading week.  After striking a natural gas deal with the U.S, European markets trade with modest gains with monetary policy data pending.  Finally, with a light day of earnings reports, the U.S. futures point to a modestly bullish open hoping to extend the winning streak a second week.  However, expect price volatility to remain challenging in the days ahead as continued geopolitical and inflationary pressures weigh on world markets.

Economic Calendar

Earnings Calendar

As we wrap up the week, we have a light day on the earnings calendar with about 30 companies listed, with the vast majority unconfirmed.  Notable reports include DOOO, DCTH, MOV, PNT, & TRUHY.

News & Technicals’

U.S. President Joe Biden and European Commission President Ursula von der Leyen announced the formation of a joint task force to bolster energy security for Ukraine and the EU for next winter and the following one.  The primary goals of the task force, the U.S. and EU said in a joint statement, would be to diversify LNG supplies in alignment with climate objectives and reduce demand for natural gas.  It comes amid heightened concern that energy-importing countries continue to top up President Vladimir Putin’s war chest with oil and gas revenue on a daily basis.  In addition, the European Parliament and EU member states reached a historic deal on the Digital Markets Act.  The reforms aim to prevent tech giants from abusing their market position to harm smaller rivals.  So-called “gatekeepers” that violate the DMA face potential fines of up to 10% of their global revenues.  Neon is required for the lasers used in a chip production process known as lithography, where machines carve patterns onto tiny pieces of silicon made by the likes of Samsung, Intel, and TSMC.  These machines are produced by Dutch firm ASML.  According to Peter Hanbury, a semiconductor analyst at research firm Bain & Co, more than half of the world’s neon is produced by a handful of companies in Ukraine.  This marks the first high-level visit between the two sides since bloody clashes on their contested border led to the deaths of 20 Indian and 4 Chinese soldiers in June 2020.  Both governments are mum on the agenda and expectations from the visit, which remained cloaked in unusual secrecy.  As the host of the annual BRICS summit later this year,  China is also believed to be seeking India’s presence at the forum, putting India, China, and Russia at the same table.  Treasury yields tick higher in the early Friday trading, with the 10-year rising to 2.3630% and the 30-year pricing up to 2.5182%.

The bulls ignored the worse-than-expected Durable Goods orders as they worked hard to rally the tech giants on Thursday.  Unfortunately, new European regulations targeting the tech giants may hamper their efforts a little today.  Nevertheless, index chart technicals continue to improve as the bulls work to hold higher lows and finish the week strong.  This morning we will turn our attention to the Consumer Sentiment reading and the Pending Home sales.  Finally, with earnings winding down and only four days next week to wrap up the 1st quarter of trading, watch for the possible end-of-quarter window dressing.  Price volatility is likely to remain high, with the world seemingly becoming a more and more dangerous place filled with uncertainty.  So, plan your risk carefully as we move toward the weekend. 

Trade Wisely,

Doug

Bears Reemerged

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Bears Reemerged

The bears reemerged yesterday, snapping the six-day winning streak and pushing the DIA below its 50- day average.  However, the bulls held the SPY, QQQ, and IWM above the critical technical level.  This morning we will turn our attention to Durable Goods, Jobless Claims, PMI, and the news coming out of the NATO meeting.  As commodities prices continue to rise, so does inflation and the chances that the Fed will be forced to act more aggressively in May, keeping traders on edge and price action challenging.  Plan your risk carefully.

During the night Asian market closed, mixed easing Covid restrictions but concerned about rising energy prices.  European markets trade near the flatline this morning, focusing on the NATO meeting results today.  U.S. futures markets are doing the standard premarket pump up ahead of economic data that could bring an extra dose of volatility should the durable goods number disappoint. 

Economic Calendar

Earnings Calendar

As usual, Thursday is the biggest earnings day of the week, with about 80 companies listed with several unconfirmed.  Notable reports include AMPS, CODX, DRI, FDS, MCW, NEOG, NIO, SGLB, SMRT, TITN, TMDI, & UFAB.

News and Technicals’

Russian President Vladimir Putin has been in power for more than two decades and, during that time, has carefully cultivated an image of himself as an authoritarian, strongman leader.  Now, analysts say his decision to invade Ukraine is the biggest mistake of his political career and has weakened Russia for years to come.  As a result, both economically and geopolitically, Russia’s position looks increasingly isolated and vulnerable.  Three pressing threats loom large over the summit, requiring the alliance to determine its response and whether military intervention would be needed.  That includes mistaken fire on an allied nation, cyberattacks on a NATO member state, and the possibility of chemical or biological warfare within Ukraine.   NATO leaders are also expected to announce more humanitarian aid to Ukraine, particularly the embattled port city of Mariupol, a fresh round of sanctions and new pressure on Moscow’s energy sector.  In addition, it is the first suspected launch of an ICBM since November 2017 during heightened tensions between North Korea’s Kim Jong Un and former U.S. President Donald Trump.  While North Korea has conducted a flurry of ballistic missile tests in recent months, Thursday’s suspected launch of an ICBM represents a significant escalation.  Clean energy and low-carbon-emitting companies would stand to benefit.  Fossil fuel production companies stand to lose.  Higher carbon footprint companies such as heavy manufacturing and industrial chemical companies will not be expected to decarbonize overnight, but they will need to disclose their emissions data.  Compliance and auditing service companies will see a surge in demand, as will software companies that automate the processes.  Treasury yields are back on the rise again this morning, with the 10-year trading up to 2.39% early Thursday morning and the 30-year rose slightly to 2.5313%.

The bears reemerged yesterday to relieve the recent rally’s short-term overextension slightly.  While the DIA closed the day back below its 50-day average, the bulls were able to defend this critical technical level in the SPY, QQQ, and IWM.  With no significant market-moving earnings report this morning, we will turn our attention to the Durable Goods number that analysts expect to come in with a negative reading.  Nevertheless, it may give us some insight into the inflationary impacts on consumers and if it suggests a slowing of our economy is underway.  Commodities prices continue to surge, with Brent crude topping 121 a barrel yesterday, but the national average gas prices stood firm at $4.24 and diesel at $5.14.  We may also be sensitive to today’s NATO meeting with the U.S. sending more troops and leveling more sanctions against Russia with fears of chemical weapons rising.  So, expect price volatility to remain challenging and keep an eye on the bond yields as they inch closer and closer toward inversion. 

Trade Wisley,

Doug