A Sweet Relief Rally

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Sweet Relief Rally

Seven days after the Monday selloff that dropped the Dow more than 1000 points, we finally caught a sweet relief rally following through from the bounce that began Friday.  However, with significant overhead resistance and substantial technical damage to the index charts, the bulls still have a lot of work ahead of them.  With a full plate of earnings and economic data, we can’t rule out the possibility of a whipsaw to test the overnight lows in the futures market.  Remember, we will get the possible market-moving earnings from GOOGL after the bell.

Asian markets rallied overnight, with Shanghai for the Lunar New Year after Australia held steady cash rates.  European markets trade decidedly bullish this morning, seeing green across the board.  U.S. futures rebounded off overnight lows but pointed to muted open ahead of earnings and economic data.

Economic Calendar

Earnings Calendar

We have more than 90 companies listed on the Tuesday earnings calendar though some are not confirmed.  Notable reports include GOOGL, PYPL, AMD, AMCR, ASH, CTLT, CB, EA, EHC, EPD, XOM, BEN, GM, GNW, GILD, HP, IMO, LII, LSXMA, MDC, MTCH, MSTR, NMR, PBI, PHM, SMG, SIRI, SWK, SBUX, SXC, SMCI, UBS, UPS & UNM.

News & Technicals’

The Swiss bank UBS posted a net profit attributable to shareholders of $1.35 billion for the fourth quarter.  This was down from $1.64 billion a year earlier and lower than the $2.28 billion reported the previous quarter.  However, UBS’ bottom line was hit by an increase of $740 million in litigation provisions for a French cross-border tax case.  Danish scientists found the BA.2 subvariant, which has rapidly become dominant in Denmark, spread more easily across all groups regardless of sex, age, household size, and vaccination status.  However, only unvaccinated people demonstrated higher transmissibility of BA.2 compared to the BA.1 omicron strain, which could be due to their higher viral load.  The study found that the probability of spreading within a household was 39% for BA.2 versus 29% for BA.1.  According to internal documents obtained by CNBC, Peloton has slashed 2022 sales projections for its apparel business.  Momentum in the unit, which is run by Chief Executive Officer John Foley’s wife, seems to be fading heading into the following year after apparel revenue more than doubled to over $100 million from 2020 to 2021.  Though the division is a small fraction of the overall business, this internal look at Peloton’s apparel arm gives another glimpse into how the connected fitness company rode a wave of heightened demand amid the Covid-19 pandemic.  But that demand has started to normalize, and Peloton has to reset.  Tensions remain high between Russia and the West, with a possible military confrontation still a concern.  Russia wants to maintain its sphere of influence over former Soviet states, including Ukraine, which aspires to join the EU and NATO.  Western officials await Russia’s response to the U.S.′ refusal to cede to its demands over Ukraine and NATO operations in eastern Europe.  Treasury yields edged higher in early Thursday trading, with the 10-year rising to 1.7893% and the 30-year climbing slightly to 2.1148%. 

A sweet relief rally began rather slowly after an initial selling to begin the day but surged strongly upward headed into the close.  During the last push of the day, the DIA squeaked above its 200-day average to join the SPY that closed solidly above the key average.  However, the QQQ and IWM could not reclaim their 200-day averages, and all the indexes remain under substantial overhead resistance levels.  This morning we will turn our attention to manufacturing data that may give us insight into the impact of inflation.  According to the Econoday consensus, the Mfg. could see a slight decline from the prior month.  We will also get construction spending and job openings data.  Later today, we get the earnings results from the tech giants GOOGL and GOOG along with AMD and others after the bell.  Futures have rallied off of overnight lows, but traders will have to stay on their toes with the high price volatility, watching for the potential whipsaw to test the overnight lows.  It was very nice to get a relief rally, but with so much overhead resistance and technical damage to the index charts, it would be unwise to assume the all-clear has sounded. 

Trade Wisely,

Doug

Energetic end-of-day Rally

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Energetic end-of-day Rally

The bulls raised the hope of a relief rally with an energetic end-of-day rally that was likely more short covering to take profits than actual buying.  The question now is, can the bulls follow through to the upside as we complete the last trading day of this challenging January volatility.  With all the indexes still below their 200-day averages, the bulls still have a lot of work to repair the technical damage.  Adding to the challenge, we face a big week of uncertain earnings reports, inflation, and a slew of jobs data to keep us guessing.  That said, traders will have to watch out for whipsaws as well as overnight gaps and reversals as the market reacts.

Overnight Asian markets traded mixed with China closed for the Lunar New Year holiday.  This morning, European markets trade mixed but mostly bullish as they try to relieve the recent selloff.  U.S. futures suggest a mixed open on this last trading day of January as we face a busy week of market-moving earnings and economic data.

Economic Calendar

Earnings Calendar

We have nearly 70 companies listed on the Monday earnings calendar, with several unconfirmed.  Notable reports include  AGNC, AXTA, CBT, CRUS, FN, HLIT, NXPI, PCH, RYAAY, SANM, TTM, TT, & WWD.

News & Technicals’

Defense analysts have said that Russia is willing to risk “real financial harm” and all-out war to achieve its political objectives over Ukraine.  However, Moscow has denied that it plans to invade neighboring Ukraine, a former part of the Soviet Union, despite having assembled around 100,000 troops at the border.  On Sunday, Bob Menendez, chair of the U.S. Senate Committee on Foreign Relations, told CNN lawmakers were devising the “mother of all sanctions” against Russia.  In addition, the White House warned that the spike in Covid-19 cases in early January could skew the data in next week’s jobs report.  Brian Deese, President Joe Biden’s top economic advisor, said the way the Labor Department collects data may have a pronounced effect on next week’s January 2022 jobs report.  A recent report from the Census Bureau showed that more than 14 million Americans did not work at some point between Dec. 29 and Jan. 10 due to Covid-19 or related impacts.  According to the head of shipping at HSBC, China’s zero-Covid restrictions will impact global supply chain recovery as any small disruption in the country will likely lead to “ripple effects” across the world.  The pandemic has revealed “how lean the supply chain has become.  And there is little margin of error,” said Parash Jain, global head of shipping and ports equity research at HSBC.  Monday’s missile launch is the third attack by the Houthis this month.  The first, on Jan. 17, killed three people, while the second attack the following Monday was thwarted.  The Bank fired the starting gun on rate rises in December, hiking its main interest rate to 0.25% from its historic low of 0.1%.  Since then, data has shown U.K. inflation soared to a 30-year high in December as higher energy costs, resurgent demand and supply chain issues continued to drive up consumer prices.  Economists expect the Monetary Policy Committee to announce a 25 basis point hike on Thursday, taking the Bank Rate to 0.5%.  Treasury yields trade in early Monday traded with the 10-year pricing at 1.7802%, and the 30-year struggled for direction at 2.30842%.

An energetic end-of-day rally raised hope of a relief rally Friday afternoon, but the question is can it follow through higher on the last trading day of January.  Although the welcomed relief from the oversold condition was nice to see, it did little to repair the technical damage as the indexes remained under their 200-day averages at the close of the day.  Moreover, geopolitical tension continued to rise over the weekend with another missile attack on the UAE, another Noth Korean missile launch, and Russia threatening an invasion of Ukraine.  Finally, as the number of earnings reports continues to ramp up this week, we also have readings on PMI & ISM inflation, Job openings, ADP, and Employment reports to keep traders and their toes and volatility high.  With so much data coming our way, stay focused on price action watching for whipsaws as well as overnight gaps and reversals.

Trade Wisely,

Doug

Where’s the Relief Rally?

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Relief Rally

The Thursday gap up raised the hope that a relief rally may finally begin once again disappointed with a bearish reversal that now threatens a test of Monday’s low.  After the solid earnings performance from APPL, overnight futures rallied, but they have also reversed, suggesting a lower open this morning.  Though internals suggest a short-term oversold condition, a relief rally may be tough to come by with mixed earnings results, a hawkish Fed, and the growing concerns of a Russian invasion as we head toward the weekend.  Moreover, earnings numbers intensify next week so expect the volatility to keep traders on edge as February approaches.

Asian markets ended the trading week with a volatile session as the real estate crisis intensified in China.  This morning, European markets trade decidedly bearish, seeing red across the board lead by the DAX down more than 2%.  Likewise, U.S. futures reversed overnight bullish to suggest a bearish open with Personal Income and Consumer Sentiment data on the horizon. 

Economic Calendar

Earnings Calendar

We get a little break on the number of earnings on Friday with less than 60 companies listed and a good number of them unconfirmed.  Notable reports include CVX, ALV, BAH, CAT, CHTR, CHD, CL, RDY, GNTX, LYB, PSX, SYF, WY, & WETF.

News & Technicals’

Apple reported its largest single quarter in revenue ever, with sales growing over 11% despite supply challenges and the lingering effects of the pandemic.  In addition, Apple beat analyst estimates for sales in every product category except iPads.  Apple CEO Tim Cook said that the company’s supply issues were improving.  Apple CEO Tim Cook said the company is seeing inflationary pressure in an interview with CNBC’s Julia Boorstin on Thursday.  The observation from the Apple CEO comes as the Biden administration and Federal Reserve grapple with questions about how to tame elevated inflation.  Robinhood anticipates first-quarter revenue of less than $340 million, down 35% compared with 2021.  According to FactSet, Wall Street expected $448.2 million in revenue for Q1.  Monthly active users fell to 17.3 million last quarter from 18.9 million in the third quarter.  Robinhood is about to face its toughest comps in the first and second quarters of 2022, following its record year in 2021 from events like the GameStop short squeeze.  According to CB Insights, tech start-ups raised a record $621 billion in venture capital funding globally in 2021.  However, some VC investors worry the boom times may not last much longer as tech stocks fall amid talk of higher interest rates.  VCs say they’re already hearing about deals renegotiated at lower valuations and even withdrawal of term sheets.  Treasury yields rose slightly in early Friday trading, with the 10-year trading at 1.8266% and the 30-year climbing to 2.1126%. 

On Thursday, the wild week continued with another huge point bearish reversal that provided early hope that a relief rally might begin.  Now, rather than a relief rally, the selling poses the possibility that the low on Monday could receive another test.  As we chop around near the recent lows, the index 50-day moving averages have turned lower, technical overhead resistance levels and hinting of a possible death cross in the weeks ahead if the selling pressure continues.  Market internals continue to suggest and shot-term oversold condition, but with a hawkish Fed and the growing concern of a Russian invasion, that’s a big question as we slide toward the weekend.  Although we have a lighter day on the earnings calendar, we have economic reports that could provide early session volatility.  So as you plan for next week, keep in mind that earnings numbers continue to intensify and will likely keep us guessing with overnight reversals and intraday whipsaws.

Trade Wisely,

Doug

FOMC Turns Hawkish

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FOMC

After the Dow swings more than 800 points from high to low, traders and investors remain on edge after learning the FOMC’s hawkish intentions.  As a result, the wild price action continued in the overnight futures even after the better than expected reports from INTC and TSLA.  Today we have another big day of market-moving economic and earnings reports that could easily inspire more whipsaws and reversals.  The path forward remains very dangerous, so plan your risk carefully as the Fed attempts to fight inflation without slowing the economy.

Asian markets had a rough night reacting to the Fed as the Nikkei fell more than 3%, closing indexes in the red across the board.  European markets gyrate in a volatile session this morning with a mix of gains and losses as they try to find direction.  U.S. futures rallied off of overnight lows, suggesting a tentative open with a slew of market-moving reports ahead to keep traders on high alert.

Economic Calendar

Earnings Calendar

Thursday will be our busiest day on the earnings calendar this week.  Notable reports include AAPL, AOS, ALK, MO, TEAM, BZH, BX, BOOT, CP, CE, CNX, CMCSA, DHR, DB, DOW, EMN, HCA, IP, JBLU, JNPR, KLAC, MMC, MA, MKC, MCD, MDLZ, MSCI, NOC, NUE, OLN, HOOD, ROK, LUV, STM, SYK, TROW, TXT, TSCO, X, VLO, V, & WDC.

News & Technicals’

Tesla beat on the top and bottom lines.  CEO Elon Musk gave a “product road map” update saying the company would not release any new model vehicles in 2022.  Instead, Tesla focuses on developing autonomous vehicle tech and scaling up production at its new factories in Austin, Texas, and outside of Berlin.  Intel reported fourth-quarter earnings on Wednesday.  Intel’s largest business, its Client Computing Group, was down 7% year-over-year to $10.1 billion, though it still beat analysts’ estimates.  Gelsinger said that the company’s next-generation server chip, Sapphire Rapids, remained on schedule to start shipping this quarter and for production to ramp up in the second quarter.  According to investment bank Morgan Stanley, the economic costs of China’s zero-Covid policy are increasingly expected to outweigh its benefits.  As a result, the bank has now cut its forecast for the first-quarter GDP to 4.5%.  “At this point, we think investors are still being too bullish with their expectation about corporate earnings,” said Laura Wang, chief China equity strategist at the firm.  Germany has provoked outrage in some quarters after it offered to supply 5,000 military helmets to Ukraine to help it defend itself against a possible Russian invasion.  The U.S. and U.K. have sent military hardware to Ukraine, as 100,000 Russian troops are believed to be located along the border with Ukraine.  However, Germany has been conspicuously reluctant to send equipment to the country.  Apple hit a record 23% market share in China in the fourth quarter of 2021, with the iPhone maker reclaiming the number one player for the first time in six years, Counterpoint Research said.  That was driven by the “relatively lower starting price” of its iPhone 13, which had a strong camera and 5G features.  Meanwhile, China’s smartphone market declined in 2021 due to component shortages and sluggish consumer spending, Counterpoint Research said.  Treasury yields traded mixed early Thursday, with the 10-year rising to 1.8495% and the 30-year declining to 2.1413%.

I guess it’s no surprise the FOMC decision to raise rates beginning in March created wild price gyrations that first shot the Dow up more than 500 but faded, selling off over 800 points in just over an hour.  The volatility continued in the overnight futures, dropping some 300 additional points to rally back near falt this morning.  Internals still indicate a short-term oversold condition, but another day of market-moving economic and earnings reports includes the behemoth APPL after the bell.  Both INTC and TSLA beat earnings estimates after the bell on Wednesday; however, the stocks are indicated slightly lower at the open today.  We should not rule out the possibility of testing the overnight futures lows, but we should also prepare for a relief rally should the day’s data inspire the bulls.  That said, we will have to keep a close eye on overhead resistance levels and expect price volatility to remain very challenging in the weeks ahead. 

Trade Wisely,

Doug

Upbeat Guidance from MSFT

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Upbeat Guidance from MSFT

Upbeat guidance from MSFT reversed early selling and sparked a substantial rally in overnight futures, but it would be wise to remember it will take a lot of work to repair the technical damage.  Moreover, the significant gap raises the danger level of another punishing whipsaw or pop and drop with so much market-moving data around the corner.  A relief rally is overdue but don’t get caught up in the morning hype and drama it creates.  Instead, stay focused on price action and carefully consider the risk of every position before jumping back into the fire ahead of an FOMC rate decision.

Asian markets traded mixed overnight as investors wait for the Fed decision and how aggressively they intend to fight inflation.   However, European markets trade decidedly bullish this morning with hopes of a relief rally high while bracing for the possible volitility the FOMC can create.  Ahead of market-moving earnings and economic reports, U.S. futures suggest a considerable gap up at the open and a continuation of the wild overnight price volatility.  Watch for the possibility of big point whipsaws or even the dreaded pop and drop as traders react to all the data. 

Economic Calendar

Earnings Calendar

We have a busy day with more than 120 companies listed on the earnings calendar.  Notable reports include INTC, TSLA, ABT, ANTM, AZPN, T, ADP, BA, CACI, GLW, CCI, DRE, EW, FANUY, FCX, GD, HES, HESM, KMB, KNX, LRCX, LVS, LC, LEVI, MTH, NDAQ, NSC, NG, PKG, PLXS, PTC, RJF, STX, NOW, SIMO, SLG, SLM, TER< URI, VRTX, WHR, & XLNX.

News & Technicals’

Microsoft surpassed estimates on the top and bottom lines, but Azure cloud revenue merely matched analysts’ expectations.  In addition, the company’s gaming business is in the spotlight after Microsoft said it would acquire Call of Duty publisher Activision Blizzard for $68.7 billion.  Bentley Motors plans to spend £2.5 billion (about $3.4 billion) over the next decade to become a fully electric luxury brand by 2030.  The investment will include significant upgrades to Bentley’s historic plant manufacturing campus in England.  Bentley’s first all-electric vehicle is scheduled to roll off the production line in 2025.  Agreements from technology companies and betting firms helped the NFL lure a record $1.8 billion in sponsorship revenue, a 12% increase year-over-year from the 2020 season.  Team sponsorship revenue only increased 4%, but the NFL is now allowing teams to sell intellectual property rights overseas.  However, the NFL is still sitting on the sidelines regarding crypto sponsorships.  The US has sent the clearest message yet that Russia, its key personnel and economic sectors, and its leader Vladimir Putin could face the severest sanctions it has ever faced.  US President Joe Biden intimated that President Putin’s Russian counterpart could face personal sanctions on Tuesday.  In addition, the US has outlined new sanctions and targets that it could impose if there is an invasion.  The Kremlin has said any personal sanctions on Putin would be politically destructive.  Treasury yields traded with little movement in early Wednesday trading with the 10- pricing at 1.7851% and the 30-year standing at 2.1309%.

Technically the index charts have a lot of work to repair the damage created by the selling uncertainty this month.  The wild price volitility continued on Tuesday with substantial point swings as we face market-moving earnings reports and economic data that include a rate decision from the FOMC at 2:00 PM Eastern this afternoon.  Upbeat guidance from MSFT reversed early selling and dramatically shifted overnight futures markets in hopes that a relief rally would begin.  However, internal indicators continue to suggest a short-term oversold condition.  Still, the big gap-up suggested this morning could easily create another painful pop and drop with so much data coming your way today.  That said, keep your wits about your today and stay focused on the price action remembering the wild volatility is likely to continue with the FOMC decision and reports from INTC and TSLA this afternoon.  Watch overhead resistance levels as areas where the bears could set up defensive positions. 

Trade Wisely,

Doug

Wild Ride on Wall Street

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wild ride

The wild ride on wall street continues as traders capitulate, dropping the Dow more than 1000 points only to race back in to close all four indexes in the green.  However, with a big day of earnings that includes the tech giant, MSFT traders fear the potential outcome with the VIX closing near a 30 handle.  Add to that a worrisome Consumer Confidence due to inflation impacts and, of course, a pending FOMC decision Wednesday afternoon, and we have all the ingredients for additional volatility today.

Asian markets retreated sharply overnight, closing in the red across the board.  However, European markets see only green this morning, trying to relieve the pressure of the recent selloff.  That said, the price volatility continues this morning, with the Dow futures suggesting a substantial gap down and keeping traders guessing as to what comes next!  So, prepare for another day of wild price action.

Economic Calendar

Earnings Calendar

We have a busier day on the Tuesday earnings calendar with another big tech report to punctuate the day.  Notable reports include MSFT, MMM, AGYS, AXP, ADM, BXP, CNI, COF, GGIV, GE, HA, HYMPY, INVZ, JNJ, LMT, LOGI, NAVI, NEE, NEP, PCAR, PII, RTX, TXN, TRMK, UMC, VZ, WSBC, & XRX.

News & Technicals’

Crisis talks aimed at averting a military confrontation between Russia and Ukraine appear to be faltering, as Western allies prepare for a possible conflict between the neighbors that could be “painful, violent and bloody.”  The U.S. Department of Defense has said that about 8,500 American troops are awaiting orders to deploy to the region if Russia does invade Ukraine.  Europe has been conspicuously absent from last-ditch negotiations to prevent tensions between Russia and Ukraine from spilling into conflict.  Bitcoin, the world’s largest virtual currency, briefly plunged below $33,000 Monday to its lowest level since July.  It’s since recovered above $36,000 but is still down almost 50% from a record high of nearly $69,000 in November.  That’s got some crypto investors talking about the possibility of a “crypto winter.”  IBM shares jump after the company reported a 6% growth in revenue over the fourth quarter.  IBM executives have been telling investors to look for mid-single-digit revenue growth.  The company spun out its managed infrastructure services unit during the quarter into a publicly held company named Kyndryl.  President Joe Biden called Fox News reporter Peter Doocy “a stupid son of a bitch” on a live microphone Monday after Doocy asked Biden if inflation was a political liability to him.  Doocy regularly baits Biden during press events, shouting over other reporters and trying to get the president off guard.  Biden has a long record of swearing on hot microphones.  Treasury yields climbed in the early Tuesday trading, with the 10-year rising to 1.7760% and the 30-year edging up to 2.1133%.

No doubt about it yesterday was a wild ride as traders capitulated with the Dow falling more than 1000 points then surged back up to close the day green across all four indexes.  But, unfortunately, the wild volatility continued in the overnight futures markets, dropping more than 250 Dow points.  Today we have a busy day of earnings, with the MSFT report coming after the bell.  After the NFLX disappointment and the considerable Nasdaq selloff, there is a palpable uncertainty as we wait for the tech giant to report.  During the morning session, we will face Case-Shiller home price numbers and worrisome Consumer Confidence numbers amid rising inflation.  Of course, anything is possible with an FOMC decision just around the corner, so buckle up for the wild ride to continue. 

Trade Wisely,

Doug

Erratic day of Price Action

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erratic day of price action

Friday proved to be an erratic day of price action, with growing geopolitical tensions and the worries of the pending FOMC raising the bar of uncertainty.  In addition, sporadic earnings results as we begin to ramp up the number of reports and economic numbers hinting at a slowing economy just add to the precarious path forward.  Unfortunately, overnight futures action continues to whipsaw in huge point moves suggesting today could see much of the same.  So plan your risk carefully as we wait for the Fed decision Wednesday afternoon. 

Asian markets closed mixed after a choppy session with tech stock still under selling pressure.  However, this morning, the European markets trade decidedly bearish with Ukraine invasion concerns and a possible hawkish Fed.  In addition, U.S. futures whipsawed during the night, now pointing to a modestly lower open ahead of earnings results and the PMI flash report.  So, hang on tight as we begin another day of volatile uncertainty.

Economic Calendar

Earnings Calendar

To begin the trading week, we have more than 40 companies listed, with the majority of them confirmed.  Notable reports include BOH, BMRC, CR, HAL, HMST, IBM, PETS, SMBK, STLD, TRST, & ZION.

News & Technicals”

The U.S. State Department urged U.S. citizens in Ukraine to leave the country immediately, as Russia’s military buildup at the border shows no sign of dissipating.  According to Ukrainian and Western officials, Russia has repeatedly denied it is preparing to invade its neighbor Ukraine, despite stationing around 100,000 Russian troops at various locations along the border.  As a result, analysts are now questioning whether the West can actually deter Russia and just how far Western allies are willing to defend the country.  Ballistic missiles intercepted two over Abu Dhabi early Monday morning.   The ministry confirmed no casualties from the attack and that “fragments of the ballistic missiles fell in different areas” around Abu Dhabi.  The targeted missile launch comes just one week after a deadly Houthi-claimed attack on Abu Dhabi that used what UAE officials say were drones and missiles.  According to a person familiar with the matter, an activist is pushing Peloton to fire its chief executive officer and consider a sale as its share price has plummeted.  Blackwells Capital, which has a stake of less than 5% in Peloton, believes Peloton could be an attractive acquisition target for larger technology or fitness-oriented companies, the person said.  To be sure, Foley and other insiders have super-voting Class B shares, which gave them control over 80% of Peloton’s voting power as of Sept. 30, according to a proxy filing.  Cryptocurrencies continued their dramatic slide Saturday.  Bitcoin was trading at around $35,000, about half of its value since its November high.  Treasury Yields trade mixed in early Monday trading with the 10-year trading at 1.7475% and the 30-year declining slightly to 2.0602%

With significant geopolitical concerns and investors worried about the upcoming Fed decision, the indexes ultimately fell prey to the bears after a very erratic day of price action.  Unfortunately, the wild price action continued in the overnight futures markets that have whipsawed as they searched for direction amid the uncertainty.  Although the T2122 indicator suggests an extreme oversold condition, we should expect more of the say today.   Questionable economic reports and spermatic earnings results have not helped the situation, and as we ramp the number of reports, price volatility is likely to continue.  Should we find a reason to begin a relief rally, watch overhead resistance levels, and keep in mind a lot of the wild speculation will be less willing to rush back in, meaning a less robust rally is possible. 

Trade Wisely,

Doug

Punishing Intraday Whipsaw

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Punishing Intraday Whipsaw

With the hope of a relief rally, the Dow surged in the morning session only to produce a punishing intraday whipsaw that erased more than 750 points by the close.  In addition, both the DIA and QQQ failed through their 200-day averages, adding to the technical damage of this selloff.  Finally, the disappointing NFLX earnings could create more downside pressure adding insult to injury.  Although we are oversold in the short term, the SPY could easily visit its 200-day average today.  Next week, a Fed decision is likely to keep uncertainty and price volatility high as we head into the weekend.

Asian markets traded mainly lower overnight tracking U.S. markets.  European markets trade decidedly bearish this morning, seeing red across the board.  Although U.S. futures bounced from overnight lows, they currently suggest a lower open, with the tech sector leading the way.  Expect another challenging day of price action as we wait on next week’s Fed decision.

Economic Calendar

Earnings Calendar

We get a little break on the Friday Earnings calendar with just five verified reports.  Notable reports include ALLY, FHB, HBAN, INFO, & SLB.

News & Technicals’

Netflix rarely says streaming competition is a concern for the company but did so in its Q4 2021 earnings report on Thursday.  After hours, Netflix shares fell more than 18% after forecasting just 2.5 million new net global subscribers for its first quarter.  In addition, Netflix last week announced it was raising prices in the U.S. and Canada, potentially exacerbating competitive pressures.  Peloton said its fiscal second-quarter revenue would be within its previously forecasted range, as it takes actions to slash costs and improve profitability.  However, the company added fewer subscribers in the latest period than expected.  CEO John Foley said the company is focused on “identifying reductions in our operating expenses as we build a more focused Peloton moving forward.”  Shares of Peloton closed down 23.9% at $24.22 on Thursday, wiping roughly $2.5 billion off of its market value.  Last month, Russia set out several main demands on Ukraine, among other security matters, in a draft security pact.  The document demanded that the U.S. must prevent the further eastward expansion of NATO and must not allow former Soviet states to join the alliance.  U.S. intelligence agencies are warning that Russia could be weighing a potential invasion of Ukraine, with the Kremlin moving 100,000 troops close to the border.  Treasury yields pulled back in early Friday trading, with the 10-year dipping to 1.7919% and the 30-year falling to 2.1103%.

After a morning rally that at one point pushed the Dow up 450 points, we experienced a punishing intraday whipsaw, closing more than 300 down and failing its 200-day average.  The QQQ also failed below its 200-day average and may follow-through lower this morning after the very disappointing NFLX report that sold off nearly 20% in after-hours trading.  Futures traded sharply lower in overnight trading but have recovered substantially this morning.  With a light day of earnings and economic reports, it could be a challenging day of price action as we slide into the weekend worries about the Fed decision next week.  Although indicators show we are in a short-term oversold condition, we can’t rule out the possibility that futures might retest the overnight low in the futures.  One thing is for sure the price volatility will likely continue to be highly frustrating and challenging in the days ahead.

Trade Wisely,

Doug

Relief Rally?

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The strong selling into the close of Wednesday opened the door for a relief rally due to the short-term oversold conditions.  However,  the rally’s success will depend on earnings reports that, as of now, seem uncertain.  In addition, as we move toward the Fed tightening monetary policy, the hints of a slowing economic condition could make the path forward challenging.  A busy morning of economic reports and the market moving report from NFLX after the bell will keep volatility high.  So expect big price action moves, intraday whips, and overnight gaps to challenge trader skills.

Overnight Asian markets rallied sharply after the China Central Bank cut key lending rates due to their slowing economy.   European market trade in a choppy morning session with mixed results as of this report.  With a big day of earnings and economic data, U.S Futures suggest a bullish open and the possible beginning of a relief rally but watch those overhead resistance levels for entrenched bears.

Economic Calendar

Earnings Calendar

We have nearly 60 companies listed on the Thursday earnings calendar.  Notable reports include NFLX, AAL, BANR, BKR, CSX, FITB, ISRG, KEY, MTB, NTRS, OZK, PPBI, PPG, RF, SASR, SIVB, TRV, UNP, & WBS.

News & Technicals’

China’s central bank cut the one-year loan prime rate by 3.8% to 3.7% by ten basis points.  Five basis points reduced the five-year loan prime rate from 4.65% to 4.6% — the first cut since April 2020, at the height of the coronavirus pandemic in the country.  The industrial economy still hasn’t seen a substantial recovery due to the global pandemic, weakening trade growth, lack of consumer demand, and other factors, spokesperson Luo Junjie told reporters.  “On top of that, recently, the coronavirus has spread to many places,” Luo said in Mandarin.  “In the first quarter of the year, the industrial economy still faces rather considerable downward pressure.  In addition, U.K. Prime Minister Boris Johnson is facing the political battle of his career.  Johnson could face a vote of no confidence if enough of his lawmakers turn against him.  In addition, Johnson has come under immense pressure amid multiple reports of parties and gatherings allegedly held by government staff and some attended by Johnson during Covid lockdowns in the U.K.  Treasury yields ticked higher in early Thursday trading, with the 10-year rising to 1.83379% and the 30-year slightly higher to 2.1533%.

Though the indexes are in a bearish technical condition with confirmed downtrends, the Wednesday afternoon rout opened the door for a relief rally due to the short-term oversold conditions.  China’s central banks lowered rates adds a little fuel to the relief rally, but traders should keep a close eye on overhead resistance levels for bear traps.  In addition, the mix of earnings results places the market in a very different condition than we have experienced in past seasons.   That said, we will have to watch earnings results closely as market-moving company reports roll out over the next few weeks.  The current selloff has relieved some of the very high valuations, but P/E ratios are still historically highs.  If earnings gains show a slowing of economic conditions, the path forward could be challenging.  Expect price volatility to remain high as we wait for the market moving report from NFLX this afternoon.

Trade Wisely,

Doug

Fear of an Aggressive Fed

by
Aggressive Fed

Fear of a more aggressive Fed confirmed downtrends with lower lows in four indexes as Treasury yields spiked, spooking investors.  Sadly, yields continue higher this morning, and the mixed bag of earnings results so far adds yet another layer of uncertainty.  The short-term oversold condition in the T2122 indicator suggests a relief rally could begin at any time but expect the price action to remain very challenging.  Geopolitical as Russia threatens invasion of Ukraine will also keep the market on edge and have negative market impacts if cooler heads don’t prevail.

Overnight Asian markets traded mainly in the red, with the Nikkei falling 2.80%.  However, European markets try to begin a relief rally with modest gains in a choppy early session.  U.S. Futures also point to a cautiously bullish open ahead of market-moving earnings and housing data.  Expect price action to remain volatile as the QQQ nears a test of its 200-day average.

Economic Calendar

Earnings Calendar

We have just over 40 companies listed on the Wednesday earnings calendar, most of them confirmed.  Notable reports UNH, AA, ASML, CFG, CMA, DFS, FAST, FUL, KMI, MS, OFG, PACW, PG, PLD, STT, USB, UAL, & WTFC.

News & Technicals’

Dr. Bruce Aylward, a senior WHO official, warned high transmission levels to give the virus more opportunity to replicate and mutate, raising the risk that another variant will emerge.  New infections have increased by 20% globally over the past week, with nearly 19 million total reported cases.  “This pandemic is nowhere near over,” WHO Director-General Tedros Adhanom Ghebreysus said.  The Biden administration will make 400 million highly protective N95 masks available to Americans for free.  People can pick up the masks at thousands of pharmacies and community health centers.  The masks will become available next week, and the program will be fully up and running by early February.  Emirates, ANA, and Japan Airlines were among the carriers to cancel some U.S. flights over concerns that the new 5G service could interfere with some onboard systems.  AT&T and Verizon agreed to delay the deployment of 5G near airports temporarily but didn’t provide additional detail.  U.S. airlines had also prepared to cancel flights before the telecom giants agreed on the delay.  Genting filed to the Hong Kong exchange, and the company will “imminently be unable to pay its debts as they fall due” as liquidity dries up.  The embattled cruise operator said it applied to wind up the company at the Supreme Court of Bermuda after the company “exhausted all reasonable efforts to negotiate with the relevant counterparties under its financing arrangements.”  The 10-year Treasury yield continued higher in early Wednesday trading at 1.9%, and the 30-year climbed to 2.2036%

The bears went to work yesterday as fears of a more aggressive Fed pushed bond yields higher, confirming downtrend patterns in all four index charts.  The mixed earnings results have also raised the uncertainty level in markets as some big banks miss expectations.  However, there is a glimmer of good news if you’re a bull because the T2122 indicator is nearing a short-term oversold condition suggesting a relief rally could begin anytime.  If a rally does begin, keep a very close eye on all the price resistance levels above for entrenched bears.  Because stock valuations are so elevated, companies that miss expectations could experience significant selling this quarter, just as we saw in the huge volume decline in GS.  For the same reason, companies that meet or slightly beat expectations could easily experience a lackluster response from investors beaten and battered by all the recent price volatility.  Although I expect a relief rally to begin soon, the price action will likely be challenging, so plan your risk carefully.

Trade Wisely,

Doug