Short-term Debt Ceiling Solution

October 7, 2021 by Doug Campbell

The market found some levity yesterday after the R’s offered the D’s a short-term debt ceiling solution providing the bulls the necessary energy to defend support levels.  The relief was nice, but the rally did not resolve overhead resistance, chart technical damage, overall downtrends.  This morning we will turn our attention toward Jobless Claims and then might see some choppy price action as we wait for the Friday Employment Situation data.  Because the D’s don’t much like the offer, expect the debt ceiling battle to create more bumps in the market as they toss sound bites at each other.

With China’s markets still closed, all other Asian markets traded higher overnight, with the HSI shaking off developer defaults to rise 3.07%.  European markets are also in relief rally mode this morning, seeing nothing but green across the board.  Ahead of Jobless Claims and buoyed by a possible debt ceiling solution, futures point to a bullish gap open but watch overhead resistance levels for entrenched bears that might not give as easily as they have before.

Economic Calendar

Earnings Calendar

Although we have more companies listed on the earnings calendar than we have seen all week, most of them are unconfirmed.  The only notable reports I could come up with are CAG & HELE.

News & Techniclals’

On Wednesday, Senate Minority Leader Mitch McConnell offered a short-term suspension of the U.S. debt ceiling to avert a national default.  “We will also allow Democrats to use normal procedures to pass an emergency debt limit extension at a fixed dollar amount,” McConnell wrote.  The stopgap offer from McConnell would take some pressure off both parties to reach a compromise by Oct. 18, when the government says they could default. But, of course, the Democrats are not happy with the proposal and will likely take the fight right up to the deadline.  Russia rode to Europe’s rescue and offered to increase gas supplies to the region amid soaring prices on Wednesday.  Experts said the move showed Europe is now essentially at Russia’s mercy when it comes to energy. Of course, the U.S. has been warning for years that, just as the U.S. had warned.  Natural gas contracts hit new highs in Europe this week — and regional benchmark prices are up almost 500% so far this year.  Toy manufacturers are grappling with a massive bottleneck in the global transportation pipeline caused by the coronavirus pandemic and worsened by the blockage of the Suez Canal in March.  Power outages in China, a resin shortage, and higher labor costs have also strained the supply of goods and increased prices.  MGA Entertainment had anticipated 50% sales growth this year but now expects to grow by 18% to 20%.  Treasury yields fell slightly this morning, with the 10-year slipping less than one basis point to 1.516% and the 30-year dipping less than one basis point to 2.069%. 

After hearing that the GOP offered a short-term debt ceiling solution, the bulls got busy defending price supports and ending a very volatile whipsawing morning session.  However, the Democrats don’t like the offer, and we can expect this political drama to extend to the deadline.  Unfortunately, yesterday’s rally did not resolve any of the charts’ technical damage, so we will still have to closely watch overhead resistance levels that may harbor entrenched bears.  This morning the market will turn its attention to the Jobless claims number that has proved problematic over the last couple readings.  Though futures are pumping up the premarket, keep in mind with the Employment Situation number looming Friday morning, it would not be uncharacteristic for the price action to become light and choppy as we wait.  Also, keep in mind the Shanghai will reopen tonight, having to catch up with the developer default impacts.

Trade Wisely,

Doug

Relief Rally or Dead Cat Bounce?

October 6, 2021 by Doug Campbell

This morning as we wait for the private payrolls number, it looks as if we could suffer a punishing overnight reversal making yesterday’s rally nothing more than a dead cat bounce. However, with worries about the debt ceiling, spiking energy prices, and rising bond yields, the ADP number will have some weighty lifting to do if it’s going to inspire the bulls.  With the 200-day moving averages within striking distance, I would not rule out the possibility they get tested as support.  So buckle up; it could be a wild price action day as the market try’s to digest the data and quantify its fears. 

Asian markets saw nothing but red across the board overnight except for China closed for a holiday.  European markets trade decisively bearish this morning, with the DAX and CAC down more than 2%.  With an ADP number just around the corner, U.S. futures point to a punishing overnight reversal the may take back all of yesterday’s rally and then some at the open. 

Economic Calendar

Earnings Calendar

We have nine companies verified to report on the Wednesday earnings calendar.  Notable reports include AYI, STZ, LEVI, & RPM.

News and Technicals’

Facebook whistleblower Frances Haugen testified before a Senate panel Tuesday, telling lawmakers they must intervene to solve the “crisis” her former employer’s products created.  Haugen unmasked herself Sunday as the source behind leaked documents at the core of a revealing Wall Street Journal series about Facebook.  She was a product manager on Facebook’s civil integrity team.  Facebook CEO Mark Zuckerberg on Tuesday addressed claims made by whistleblower Frances Haugen, denying that the company prioritizes profits over user safety.  In her annual policy address on Wednesday, Hong Kong’s controversial national security law and electoral changes have brought the city “back on the right track,” Chief Executive Carrie Lam said.  OPEC+ is sticking to an earlier pact on oil output despite calls for more crude production.  John Driscoll, the chief strategist at JTD Energy Services, said that OPEC+ decision was a “very prudent course of action” until one considers the ongoing energy crises and possible supply disruptions.  Oil prices jumping to $100 per barrel is possible, but Driscoll said it’s not sustainable. Treasury yield moved higher this morning, with the 10-year rising 3-basis points to 1.56% and the 30-year jumping 4-basis points to 2.137%.

Yesterday’s bounce was nice but did nothing to resolve the overhead resistance or technical damage, and now it looks as if it was nothing more than a dead cat bounce.  Debt ceiling worries, surging energy prices, and rising bond yields are just a few of the issues continuing to motivate the bears in a possible overnight reversal. As a result, traders picking up new long positions yesterday will likely feel a bit betrayed this morning.  For years traders have been conditioned to buy the dip, but that activity can heavily damage accounts in a market correction and outright destroy them if this turns into a full-on bear market.  With the 200-day moving average within striking distance in the DIA and QQQ, we can not rule out the market’s potential to test those levels in the near future.  Of course, if the ADP number comes in surprisingly bullish, that could change sentiment.  However, should it come in less than expected, it could also create a bearish pile-on selloff.  So hang on tight; it could be a wild day!

Trade Wisely,

Doug

Tech Under Pressure

October 5, 2021 by Doug Campbell

With tech under pressure yesterday, the attempt to pump up the open in the premaket found sellers reversing the hope of relief shortly after the open.  This morning the futures once again point to a hopeful relief rally, but with significant jobs data just around the corner, can we trust bulls to hang in and fight?  No matter what happens with the VIX elevated, expect the price action to challenge us with whipsaws and reversals.  Keep a close eye on overhead resistance levels for entrenched bears that will likely not easily give up their current dominance of the trend.

With China closed, Asian markets traded in a choppy session, with the Nikkei falling more than 3% in early trading but recovered to close down 2.91%.  However, European markets are trying to shake off market worries, trading in the green this morning across the board.  U.S futures have also recovered from overnight lows, pointing to a bullish open ahead of Trade and ISM Services data.

Economic Calendar

Earnings Calendar

We have just two verified reports on the Tuesday earnings calendar, and both PEP & SAR are notable.

News and Technicals’

PepsiCo on Tuesday raised its full-year forecast after its quarterly earnings and revenue topped analysts’ expectations. In addition, the company’s organic revenue climbed 9% in the quarter.  New Zealand has become the latest country to abandon a “zero Covid” strategy, a decision that comes as the delta variant of the virus proved too potent to stop.  A “zero Covid” policy seeks to eliminate community transmission of the virus. However, experts say the highly infectious delta variant makes that tricky.  President Joe Biden on Monday blamed Republicans for blocking efforts to raise or suspend the U.S. borrowing limit and avert a first-ever default on the national debt.  Republicans are “threatening to use their power to prevent us from doing our job: Saving the economy from a catastrophic event,” Biden said.  China needs to bolster its coal supply to avoid an economic slowdown this quarter, but Beijing’s icy relations with Australia could make that difficult, according to Japanese investment bank Mizuho.  The world’s second-largest economy is facing a power shortage owing to a combination of factors such as extreme weather, surging demand for Chinese exports, and a national push to reduce carbon emissions. China generates most of its electricity by burning coal, but major power plants’ inventory reached a 10-year low in August.

Although futures point to a rebound this morning, the technical damage in the chats worsened yesterday, with SPY and QQQ creating news lows with tech under pressure.  The T2122 indicator suggests we have not reached an oversold condition, so we can’t rule out additional selling.  However, it would also be unwise to rule out the possibility of a relief rally.  Markets rarely fall in a straight line and are more commonly a very volatile process with big swings between the lows and highs of the downtrend.  Should the bulls step up, it could provide some excellent relief, but don’t ignore the overhead resistance or forget the market-moving jobs data later this week.  With the 200-day averages now within striking distance on the DIA and QQQ at a test of that, technical support is not out of the question.  With the VIX elevated, we should also expect erratic price action, whipsaws, and reversals to challenge a trader’s discipline and trade plan. 

Trade Wisley,

Doug

A Friday Short Squeeze Rally

October 4, 2021 by Doug Campbell

After gapping up then testing recent lows, the bulls stepped up to defend, resulting in a short squeeze rally to end the week. Unfortunately, though it provided some sweet relief in the selling, it did nothing to repair the technical damage in the DIA, SPY, and QQQ index charts that remain in a downtrend and under significant overhead price resistance. In addition, Evergrande missed another 120 million bond payment on Sunday, once again raising concerns about a debt bubble contagion spreading.  So get ready for another week of uncertainty as we wait on Private Payroll data and the Friday Employment Situation report.

Overnight Asian market mainly traded lower, with the HSI falling 2.19% after halting Evergrand trading.  China’s markets will be closed until Friday due to a holiday.  European markets traded mixed this morning with very modest gains and losses.  U.S. futures point to a bearish open but off overnight lows to begin a busy week of jobs data. 

Economic Calendar

Earnings Calendar

We have only three confirmed earnings reports on the calendar, but only CMTL rises to be somewhat notable for today.

News & Technicals’

Facebook back under scrutiny after a whistleblower leaked documents detailing private research to The Wall Street Journal and the U.S. Congress.  The documents revealed that Facebook executives had been aware of the negative impacts of its platforms on some young users. The whistleblower unmasked herself as former product manager for civic misinformation Frances Haugen during Sunday’s “60 Minutes” interview.  Shares of Evergrande and Evergrande Property Services were halted Monday morning. The embattled property giant said it requested the trading halt ahead of an announcement about a “major transaction.” Chinese developer Hopson also suspended trading of its shares, citing an impending announcement of a “major transaction” to acquire a Hong Kong-listed company’s shares without specifying.  Buckling under the weight of more than $300 billion in debt, Evergrande has been trying to offload stakes in other assets.  The Chinese markets are closed through Thursday for a holiday and will reopen on Friday.  Treasury yields rose slightly in early morning trading, with the 10-year trading up to 1.469% and the 30-year climbing to 2.046%.

Friday produced a nice short squeeze rally after testing recent lows but unfortunately did not resolve the bearish technical picture in the index charts.  The DIA, SPY, and QQQ continue to face overhead resistance, downtrend resistance as well as the technical resistance of declining moving averages on the daily charts.  However, with the shortages and inflationary pressures growing on energy sector stocks, the IWM managed to recover its 200 and 50-day averages though still below downtrend resistance.  The Chinese developer Evergrande missed another 120 million bond payment on Sunday. As a result, they halted trading in Evergrande and another developer raising more uncertainty as to what comes next.  Hong Kong fell 2.19%, and Japan fell 1.13%, with the Shanghai composite closed through Thursday for a holiday.  The big question for European and U.S. markets is whether this debt bubble contagion will spread.  Plan for another wild week of price action with Private Payroll numbers mid-week and the Employment Situation report on Friday.

Trade Wisely,

Doug

Feisty Bears

October 1, 2021 by Doug Campbell

Those feisty bears once again reversed early market gains and maintained that bearish pressure right into the close even with the news that the government would not shut down.  Congress managed to kick the can down the road until December 3^rd setting up another uncertain debt-ceiling battle.  As the Eurozone sells off due to an inflationary reading that nearly hit a 30-year high, we face a similar report this morning.  So far this morning, we have rallied sharply off the overnight futures low, but we can’t rule out another test of that low today.  Plan a wild day of price action that could include sharp reversals and quick and even punishing whipsaws the market digests the data.

Asian markets traded mostly lower overnight, led by the Nikkei, which fell 2.31%, followed by ASX dropping 2.00%.  On the other hand, European markets trade decidedly bearish across the board due to soaring energy prices and inflation.  U.S. futures point to a bearish open this morning but well off the overnight lows as we wait on potential market-moving data. 

Economic Calendar

Earnings Calendar

Though we have three companies listed on the earnings calendar, there are none confirmed.  As a result, there are no notable reports today.

News & Technicals’

Inflation brings tremendous pressure to the Euro Zone, with consumer prices rising 4.1% in September, the highest level in almost 30 years! Furthermore, as winter approaches, their energy prices continue to rise, hitting a 13-year high, adding insult to injury.  That said, central bankers are of the opinion recent spikes in inflation are “transitory,” and that price pressures will ease in 2022. Hmmm?  Facebook’s Antigone Davis, the company’s global head of safety, testified before the Senate Commerce subcommittee on consumer protection. In their questioning, lawmakers were backed by Facebook’s own internal documents leaked by a whistleblower. “If we’re dealing with Facebook’s real world where the safeguards are more illusory than real, there should be no Instagram for kids, period,” Sen. Richard Blumenthal, D-Conn., told reporters.  A phase 3 trial of Merck and Ridgeback Biotherapeutics’ oral antiviral treatment molnupiravir showed it reduced the risk of hospitalization or death by around 50% in Covid-19 patients.  Merck plans to seek Emergency Use Authorization in the U.S. and submit marketing applications to other global drug regulators.  If authorized by regulatory bodies, molnupiravir could be the first oral antiviral medicine for Covid-19.  U.S Treasury yields are pulling back this morning, with the 10-year trading at 1.4944% and the 30-year moving lower to 2.056%.

Although Congress kicked the can down the road averting a government shutdown yesterday, those feisty bears remained in control, closing September with a nasty selloff.  During the night, futures continued to sell off strongly, but the time of writing this report had recovered substantially from overnight lows.  Today, we face key inflation data with economists forecasting that core CPI climbed 0.2% in August and 3.5% year over year.  Over in Europe, that number rose to its highest level in nearly 30 years, so buckle we could have another wild ride if the number happens to come in higher than projections.  Despite the soaring inflation, the U.S. House will be working hard to pass trillions, more likely adding more inflationary pressure.  With the wild price volititly, we can not rule out a retest of overnight futures lows or a sharp recovery rally depending on the inflation reading.  Perhaps both could be true in the same session. So, let’s get ready to rumble!

Trade Wisely,

Doug

Modest Relief Rally

September 30, 2021 by Doug Campbell

Although the Wednesday modest relief rally was nice, it, unfortunately, did nothing to improve the technical picture of the index charts.  This morning the market will have to digest GDP data that economists expect to increase and that pesky Jobless Claims report.  If that were not enough, traders will need to keep an on Congressional decisions to spend a few more trillions and prevent a government shutdown at midnight.  That should be enough to keep price volatility high.

Asian market traded mixed overnight as the data showed an unexpected contraction in Chinese factory activity.  European market trade with modest gains and losses this morning cautiously attempting to shake of market jitters.  However, the premaket pump up is well underway in the U.S., pointing to another gap-up open ahead of critical market data. 

Economic Calendar

Earnings Calendar

We have our busiest day of the week on today’s earnings calendar, with 16 companies listed, although about half are unconfirmed.  Notable reports include BBBY, ANGO, JEF, MKC, & PAYX.

News & Technicals’

It looks like today is shaping up as a big day of political news.  First, Congress has to hammer a deal to avoid a government shutdown at midnight tonight.  Then the battle begins on the infrastructure bill and the enormous social programs bill. Next, Fed Chairman Jerome Powell still expects inflation to ease eventually but said he sees the current pressures running into 2022.  The central bank leader said the current inflation pressures are “frustrating.” Finally, more than half of restaurant operators surveyed by the National Restaurant Association say that business conditions are worse now than three months ago.  The delta variant, understaffed restaurants, and higher food costs are among the issues plaguing the industry.  U.S. Treasury yields eased slightly early this morning, with the 10-year falling less than a basis point to 1.531% and the 30-year also drifting lower less than a basis point to trade at 1.078%.

Though yesterday’s modest relief rally was nice, it sadly did nothing to improve the bearish technical issues in the DIA, SPY, and QQQ charts.  In truth, the QQQ could not hold early gains making a new low by the close of the day.  This morning we face two potential market-moving reports that will likely set the tone for the morning session.  According to consensus estimates, the GDP analysts see a slight increase, and the Jobless Claims expect a decline.  We will also have to keep an eye on the political developments in Congress as their decisions could have substantial market ramifications.  Traders should also keep an eye on bond rates because if they continue to rise, it could be particularly damaging to the tech sector.  Volatility is likely to remain high, so remember, if you don’t have an edge, cash is a position! 

Trade Wisely,

Doug

Rapid Rise in Bonds

September 29, 2021 by Doug Campbell

Though big tech has seemed impervious to all bearish attacks of late, the rapid rise in bonds proved to be their kryptonite.  Other worries such as debt ceiling deadlines, rising inflation, fading consumer confidence, and Chinese real estate impacts only added to the selling pressure creating severe technical damage to the index charts. As a result, the DIA, SPY, and QQQ charts now indicate bearish trends, and though bonds pulled back modestly, this morning risk remains high as their rally could soon continue.  As a result, expect price volatility to remain very challenging in the days ahead.

Overnight Asian markets traded mixed but mostly lower, with the NIKKEI plunging 2.12% as investors wait to see if Evergande can make Wednesday’s bond payments.  European markets trade green across the board, working to recover some of yesterday’s selloff.  Ahead of earnings, Pending Home Sales, Petroleum status numbers, and more Congressional testimony from Powell, U.S. futures point to a bullish open hoping to recover some of yesterday’s losses. So buckle up; it could be another wild price action day.

Economic Calendar

Earnings Calendar

On the mid-week earnings calendar, we have eight confirmed reports.  Notable reports include CTAS, MLHR, JBL, NG, & WOR.

News & Technicals’

Jamie Dimon said the country’s largest lender has begun scenario-planning how a potential U.S. credit default would affect the repo and money markets, client contracts, and capital ratios.  “This is like the third time we’ve had to do this, and it is a potentially catastrophic event,” he said.  In a filing to the Hong Kong exchange on Wednesday, Evergrande said it would sell the 1.75 billion shares in Shengjing Bank to the Shenyang Shengjing Finance Investment Group at 5.70 yuan per share.  Last week, the property firm already missed one key $83.5 million coupon payment on an offshore March 2022, $2 billion bonds.  Markets are closely watching to see if the firm will meet its $47.5 million interest payment due Wednesday.  Sen. Elizabeth Warren charged that Fed Chairman Jerome Powell had led an effort to weaken the nation’s banking system, and she would oppose his renomination.  In remarks made during a Senate hearing, the Massachusetts Democrat cited several instances where she said the Powell Fed has watered down post-financial crisis bank regulations.  U.S Treasuries retreated Wednesday morning, with the 10-year yield falling to 1.496% and the 30-year sliding to 2.04%.

The rapid rise in bonds created an ugly selloff in the tech sector that until now has seemed impervious to bearish activities of late. Moreover, the uncertainty of the debt ceiling battle in Congress likely added some additional energy to the bears in yesterday’s rout.  Additionally, comments from Jerome Powel that warned inflationary pressures would continue into the near future didn’t hope the situation. The unfortunate consequence is the severe technical damage created in the index charts. As a result, we will have to keep a close eye on bond rates in the future.  Fed operations have kept yields in check, but the Fed could lose control is a growing concern.  Legendary investor Jeremy Grantham used the term “magnificent bubble” to describe the current market condition comparing to 1929 and 2000. So be very careful rushing in to buy the dip because yesterday may have signaled a fundamentally different market condition.

Trade Wisely,

Doug

Bearish Candle Pattern

September 28, 2021 by Doug Campbell

Yesterday’s morning surge of buying faded by the end of the day, which left behind a bearish candle pattern and raised concerns about a possible failure pattern at the Dow 50-day average.  Though the price action was indecisive, the SPY and QQQ also ended the day back below their 50-day averages suggesting the relief rally momentum has faded.  With Powell warning of continued inflationary impacts, the sharp rise in bond yields, coupled with a looming debt ceiling deadline, there is plenty of uncertainty to unsettle markets.  Expect price volatility to remain high as we wait.

Asian markets traded mixed as economists cut China’s GDP forecasts and concerns that the Evergrande real estate impacts have spread into Hong Kong.  European markets traded decidedly bearish this morning as tech shares leading the way lower.  Ahead of earnings, economic data, and Fed testimony in Congress, U.S. Futures point to gap down open.

Economic Calendar

Earnings Calendar

On the Tuesday earnings calendar, we have 18 companies listed, with about half of them unconfirmed.  Notable reports include MU, CALM, FDX, INFO, THO, & UNFI.

News & Technicals’

Jerome Powell will testify today in Congress regarding the Fed’s economic response to the pandemic.  According to his prepared comments, he will caution that the cause of the recent rise in inflation may last longer than anticipated.  “Inflation is elevated and will likely remain so in coming months before moderating.” Wells Fargo is back in the news this morning for defrauding currency customers.  The bank allegedly overcharged 771 businesses on foreign exchange transactions from 2010 through 2017, according to the U.S. Justice Department lawsuit filed Monday.  Wells Fargo told the commercial customers that they were being charged specific fixed rates but then incentivized salespeople to “overcharge FX customers,” according to the filings. Finally, Goldman Sachs cut its forecasts for China’s economic growth in 2021 as constraints on energy consumption added to headwinds facing the world’s second-largest economy.  S&P Global Ratings also lowered its 2021 GDP forecast for China and said uncertainty in the Chinese economy would affect growth prospects across Asia-Pacific.  The rise in U.S Treasuries has begun to concern investors, with the 10-year topping 1.54% this morning and the 30-year spiking to 2.0635% in early morning trading. 

The morning surge in the Dow tested its 50-day average as resistance but left behind a bearish candle pattern, raising concerns about what happens next.  The SPY and the QQQ also closed the day back below their 50-day averages with indecisive price action, while the surge in oil prices lifted IWM for a bullish close. Finally, the VIX ended the day slightly higher, recovering its 50-day and holding onto its upside trend as the relief rally loses momentum.  Today we will get readings on International Trade, House Prices, and Consumer Confidence while digesting comments from Powell & Yellen during congressional testimony later this morning.  The steep rise in bond yields over the last few days is beginning to worry investors as Jowell warns that the impacts of inflation are likely to continue longer than expected.  With the debt ceiling deadline looming, there is ample reason for uncertainty so expect price volatility to remain high. 

Trade Wisely,

Doug

Bullish Improvement

September 27, 2021 by Doug Campbell

The tremendous relief rally created a lot of bullish improvement in the index charts, but with overhead price resistance above, we can sound the all-clear just yet.  The Dow has the most significant challenge still under its 50-day average despite more than a 1200 point rally from last Monday’s low.  As we wait for Congress to deal with the debt ceiling and possible trillion-dollar infrastructure vote, choppy uncertain price action is possible.  The results of the Durable Goods number will likely set the tone for the morning session.  Economists expect an improvement over the last month’s negative reading.

Asian markets struggled to find direction overnight, closing mixed as investors search for clarity and the impacts of the Evergrande default.  European markets trade mixed with modest gains and losses as they sorted out the details of the German election results.  U.S. futures also point to a mixed open with Durable Goods numbers ahead of the open and the political uncertainty of the debt ceiling vote later this week.

Economic Calendar

Earnings Calendar

To kick off the week, we have 11 companies listed on the earnings calendar, but most are unconfirmed. Notable reports include CNXC and ACB.

News & Technicals”

We have an interesting political news week that could move markets. First, U.S. House of Representatives Speaker Nancy Pelosi reiterated Sunday that she expects the $1 trillion bipartisan infrastructure bill to pass this week now set for Oct. 1^st.  However, many from her party oppose the bill saying they will not pass it until the 3.5 trillion social programs bill is passed.  Congress is also against a debt ceiling deadline that could shut down the government if not completed in time.  We also have a big week of Fed conversation with Powell testifying to Congress and FOMC committee members speaking throughout the week. Finally, preliminary results on Monday morning showed the center-left Social Democratic Party gaining 25.8% of the vote, according to the country’s Federal Returning Officer.  The election is significant because it heralds the departure of Angela Merkel, who is preparing to leave office after 16 years in power.

There was a lot of bullish improvement last in the index charts, hoping that we could zoom right back to set new record highs.  However, with overhead price resistance, debit ceiling uncertainty, as well as a possible trillion-dollar infrastructure bill, passing we could see an uneasy market gyration as we wait.  Durable Goods number this morning will likely set the stage for the morning session.  Economists expect an improvement from last month -0.1 reading to a 0.6%.  The DIA has the most significant challenge still below its 50-day average after rallying 4% off last Monday’s low.

Trade Wisely,

Doug

Recovery Rally

September 24, 2021 by Doug Campbell

Yesterday’s booming recovery rally repaired a lot of the technical damage in the index charts, but traders will still have to watch overhead resistance levels closely.  Pricing pressures, product shortages, debt ceiling politics are just a few of the uncertainties on the path forward. So expect the price volatility to remain challenging in the days ahead.  With the Dow nearly 1200 points off the Monday low, I would not rule out a possible risk-off day heading into the weekend despite the bullish momentum. 

Asian markets traded mostly lower as Evergrande continues to concern investors and China crackdown prohibiting all cryptocurrency exchanges.  This morning, European markets trade in the red across the board as they monitor the German election and Evergrande impacts.  Ahead of housing data and more Fed speak, the U.S futures currently point to a bit of profit-taking after yesterday’s energetic rally.

Economic Calendar

Earnings Calendar

On the Friday earnings calendar, we only have six verified reports.  Notable reports include CCL & JOBS.

News & Technicals’

The People’s Bank of China said services offering trading, order matching, token issuance, and derivatives for virtual currencies are strictly prohibited, vowing a harsh crackdown.  An American short-seller banned from trading in Hong Kong for a damning report he wrote on Evergrande, Andrew Left says the Chinese property developer’s debt crisis was “a long time coming.”  Evergrande was due to pay $83 million of interest on Thursday for a dollar-denominated bond set to mature in March 2022. Foreign investors typically hold dollar bonds. So even if no payment is made on Thursday, the company will not technically default unless it fails to make that payment within 30 days.  The White House on Thursday began to advise federal agencies to prepare for the first government shutdown of the Covid-19 era.  The administration’s Office of Management and Budget is alerting federal agencies that they are expected to execute shutdown plans next week, barring a new appropriations bill. Meanwhile, House Speaker Nancy Pelosi and Senate Majority Leader Chuck Schumer announced “an agreement on a framework” with the White House over taxes to pay for the $3.5 trillion reconciliation package.  U.S. Treasury yields rose sharply this morning, with the 10-year rising 30 basis points to 1.4406% and the 30-year trading 32 basis points higher at 1.9563%.

Yesterday’s sharp recovery rally repaired a lot of technical damage, but we’re not out of the danger zone just yet.  The indexes still have significant overhead resistance, a possible government shutdown, high inflation squeezing consumers, growing product shortages, and those pesky rising Jobless Claims.  Toss in tax hikes on the way and a possible Fed taper, and the path forward is understandingly uncertain.  With the Dow closing nearly 1200 points above the Monday low, the current momentum favors the bulls.  However, the T2122 indicator has quickly recovered to a short-term overbought condition. As we head into the weekend, we can’t rule out the possibility of profit-taking and risk reduction due to the uncertainties.  Volatility remains high with housing numbers later this morning and a slew of Fed speakers, including Jerome Powell. So plan your risk carefully and have a wonderful weekend!

Trade Wisely,

Doug