Highest PPI Reading on Record

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Highest PPI Reading on Record

The bulls shrugged off the highest PPI reading on record yesterday, choosing to react bullishly in the travel sector after DAL reported a smaller than expected loss.  As we wait for a busy morning of big bank earnings and economic reports, Europe waits for an ECB rate decision to fight its inflation battle.  It would not be a surprise to see a morning of wild price volatility and an afternoon of uncertainty as we slide into a 3-day weekend as Russia increases its threatening rhetoric. 

Asian markets closed green across the board as South Korea tightened its monetary policy.  European stocks trade mixed and muted as they wait on the ECB decision.  With a big day of data and a pending 3-day weekend ahead, U.S. futures tiptoe around the flatline, pensive about what comes next.

Economic Calendar

Earnings Calendar

We have about 60 companies listed on the Thursday earnings calendar, with many unconfirmed.  Notable reports include UNH, ALLY, C, GS, LAKE, MS, PNC, RAD, STT, SNDL, TSM, ERIC, USB & WFC.

News & Technicals’

Russia says a nuclear-free Baltic region would no longer be possible if Finland and Sweden join NATO, alluding to additional nuclear deployments in Europe.  The comments come a day after Finland and Sweden said their decision on whether to apply for NATO membership would come within a matter of weeks.  Finland and Sweden are members of the EU but not NATO, and the latter shares an 830-mile border with Russia.  The risk that the Federal Reserve accidentally tips the U.S. economy into recession as it combats inflation is rising, according to JPMorgan Chase CEO Jamie Dimon.  “I’m simply pointing out that those are storm clouds on the horizon that may disappear, they may not,” Dimon said.  In the event that a recession does develop, the bank would “have to put up a lot more” for loan loss reserves, Dimon told reporters.  A huge leak of internal documents — thought to be an act of revenge over Conti’s pro-Russia stance — revealed details about the notorious hacker group’s size, leadership, and operations.  The messages show that Conti operates much like a regular company, with salaried workers, bonuses, performance reviews, and even “employees of the month.”  However, cybersecurity experts say some workers were told they were working for an ad company and likely were unaware of who was employing them.  Israeli historian and bestselling author Yuval Noah Harari says the growing risk that Russia may turn to nuclear weapons poses an existential threat to humanity.  Still, Harari warned that it is not for Western allies to try to preempt such action by seeking regime change in Russia.  Federal Reserve board member Christopher Waller said Wednesday that he expects interest rates to rise considerably over the next several months.  In a CNBC interview, Waller said current data on inflation and the general strength of the economy justify half-percentage-point increases ahead.  The Fed normally increases in 25-basis-point increments.  Treasury yields declined slightly in early Thursday trading, with the 10-year dipping to 2.6787 and the 30-year slipping less than a basis point to 2.791%.

The bulls went to work defying the highest PPI reading on record and disappointing results from JPM and BLK.  A smaller than expected loss from DAL inspired travel stocks to surge yesterday, with investors seeing a hopeful glimmer the industry is recovering despite the rising inflation.  Today the market is bracing for multiple big bank reports and a busy morning of possible market-moving economic data.  Markets could also react to an ECB rate decision expected this morning to fight the punishing effects of inflation.  Traders should prepare for price volatility as the date rolls out and consider their risk carefully as we slide into a 3-day weekend.  With Russia stepping up its threatening rhetoric of shutting off gas supplies to Europe and nuclear action if Finland and Sweden join NATO, the long weekend of uncertainty could make the afternoon session challenging.  Buckle up for a possibly bumpy ride.

Trade Wisely,

Doug

Inflation Highest Level Since 1981

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Highest Level Since 1981

The bulls tried hard to convince us that inflation hitting the highest level since 1981 didn’t matter as the Dow surged 330 points in early trading.  That all changed when the second in command at the Fed reiterated, they would aggressively raise interest rates to fight the rapidly rising prices.  Today we get a reading on PPI and toss in the beginning of 2nd quarter earnings to fuel the fire’s volatility.  With geopolitical tensions rising and China going into lockdown, the second quarter could prove as challenging as the first, with wild price gyrations and uncertainty.

Asian markets traded mixed but mainly bullish overnight as China’s exports rose more than expected.  European markets, however, trade mixed but mainly in the red with an ECB decision on the horizon amid rising inflation.  Once again, the futures point to a gap open with PPI just around the corner as JPM earnings disappoint. 

Economic Calendar

Earnings Calendar

Today we officially kick off the second quarter earnings season that begins with the big banks.  Notable reports include JPM, DAL, BBBY, BLK, FAST, FRC, INFY, RENT, & SJR.

News & Technicals’

The China lockdowns have the potential to trigger supply chains issues that could dwarf 2020 and 2021 challenges.   Many goods are stuck in China now, and a “big problem looms” for the global economy, says IMA Asia’s Richard Martin.  In the last few weeks, China has been battling its most severe Covid outbreak on the mainland since the initial shock of the pandemic in early 2020.  A trade rupture between Germany and Russia could dent German manufacturing – one of three global manufacturing centers besides the U.S. and China, S&P Global’s Chief Economist Paul Gruenwald told CNBC’s “Squawk Box Asia.”  According to Germany’s Federal Statistical Office, trade between Germany and Russia jumped significantly in 2021, with the value of goods surging 34.1% to 59.8 billion euros ($65 billion).  Research and consultancy firm Wood Mackenzie also warned that the global economy could undergo “more permanent changes” with global trade possibly altered by the crisis.  Fewer than 10,000 people are using CNN+ on a daily basis two weeks into its existence, sources said.  The paltry audience casts doubt on the future of the application following the recently completed combination of Discovery and WarnerMedia into Warner Bros. Discovery.  Warner Bros. Discovery CEO David Zaslav hasn’t commented publicly on CNN+’s long-term future.  He told CNBC in February he’d need to see how the application performed before deciding on any next moves.  Treasury yields were back on the rise in early Wednesday trading, with the 10-year advancing to 2.7786% and the 30-year rising to 2.8632%.

With inflation hitting the highest level since 1981, the market briefly tried to make us believe it didn’t matter as the Dow surged 330 points.  However, when Brainard reiterated that the Fed would aggressively raise rates to fight the rapidly rising prices, the bears took over, winning the day.  Today we face the beginning of the 2nd quarter earnings season, and a PPI number expected to also come in hot.   The willingness of the market to ignore the critical internals in favor of wild speculation will continue to fuel the dangerous price volatility creating huge point whipsaws and reversals.  As a result, Inexperienced retail traders are likely to suffer the most when the Fed finally pops this speculation bubble.  Adding in the significant emotional gyrations of the earnings season will only add to the volatility.  Toss in a China lockdown and the geopolitical complications, and the path forward looks very challenging. 

Trade Wisley,

Doug

Hot Inflation

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hot inflation

Uncertainty brought out the bears yesterday as the market braces for the impacts of a hot inflation reading and the possible impacts of another China lockdown.  Bond yields continue to increase, adding selling pressure to the tech sector, with the DIA, SPY, QQQ, and IWM pushing below their 50-day averages.  Can we continue to ignore the impacts of rising rates and insidious tax of rapidly rising inflation on the consumer?  We will soon find out but prepare for some wild price volatility that may include head fakes, whipsaws, and reversals as the market reacts. 

Asian markets closed mixed as investors tried to measure the impacts of another widespread lockdown in China.   European markets see red across the board as a significant undisclosed investor sells German banks tanking Deutsche bank by 9.5%.  With a light day of earnings and pending CPI reading, the U.S. futures point to a flat open in the premarket, but anything is possible after the number comes out.  So, prepare for just about anything.

Economic Calendar

Earnings Calendar

We have 15 companies listed on the earnings calendar, most of them unconfirmed.  Notable reports include ACI & KMX.

News & Technicals’

Economists expect inflation to rise 1.1% in March from the prior month, but the year-over-year gain is 8.4%, the highest since December 1981.  The consumer price index will be reported Tuesday at 8:30 a.m. ET.  The main culprits behind the jump in headline inflation were food and energy, but the cost of housing has continued to rise.  “It’s going to be ugly,” said one economist of the March report.  “It’s a perfect storm.”  Japan’s health ministry said Monday that the new XE variant, first detected in the U.K., was found in a woman in her 30s who arrived at Narita Airport.  The XE subvariant is a so-called recombinant, or mix, of two earlier omicron strains, BA.1 and BA.2.  According to the latest statistics from the U.K, one hundred twenty-five cases of XE have been detected in the U.K., almost double the previous count.  Health Security Agency.  President Joe Biden is visiting corn-rich Iowa on Tuesday to announce he’ll suspend a federal rule preventing the sale of higher ethanol blend gasoline this summer as his administration tries to tamp down prices at the pump that have spiked during Russia’s war with Ukraine.  The Environmental Protection Agency will issue an emergency waiver to allow the widespread sale of 15% ethanol blend, usually prohibited between June 1 and Sept. 15 because of concerns that it adds to smog in high temperatures.  Senior Biden administration officials said the move would save drivers an average of 10 cents per gallon at 2,300 gas stations.  Members of Congress from both parties, as well as industry groups, had urged Biden to grant the E15 waiver.  Treasury Yields continued to rise in early Tuesday trading, with the 10-year trading up to 2.8250% and the 30-year slightly higher at 2.8353%.

A rapidly rising infection rate in China and fears of a hot inflation reading pushing bond yields higher kept the bears active on Monday, fearing economic impacts.  Add in the intensifying war in Ukraine, and uncertainty ruled the day though the fear registered by the VIX remained relatively modest.  This morning, investors will turn attention to the CPI, which could come in at levels not seen since 1981.  Overall the market has had an amazing ability to ignore the impacts of inflation, but the Fed, now willing to sacrifice market growth to fight rising costs, adds a new wrinkle for investors.  As a result, anything is possible, and traders will have to stay focused on price action with the possibility of intraday whipsaws or full-on reversals as the uncertainty unfolds.  So, fasten those seatbelts tightly as it could be a bumpy ride!

Trade Wisely,

Doug

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