Intraday Whipsaw Oil Surges

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whipsaw

Worries of soaring energy prices and the inflationary pressures it causes crated a nasty whipsaw, likely disappointing morning session buyers.  Unfortunately, that resulted in another failure at the DIA 50-day average while also creating low high failures on SPY and QQQ.  The technical damage adds additional uncertainty as we await the beginning of 4th quarter earnings.  After the JOLTS report, this morning could easily experience more of the same choppiness with JPM earnings, consumer price data, and possible clues of taper in the FOMC minutes on Wednesday.  Plan your risk carefully.

Overnight Asian markets traded red across the board, with the HSI leading the way down 1.43%.  European markets trade mainly lower this morning with modest losses as investors monitor declining global sentiment.  U.S. futures that were lower most of the night now point to a modestly bullish open as the premarket pump tries to shake off rising energy price impacts to inflation. 

Economic Calendar

Earnings Calendar

On the Tuesday earnings calendar, we have 13 companies listed, but only six are confirmed reports.  Notable reports include AZZ, FAST, PNFP, & SGH.

News and Technicals’

China is not alone — India is also teetering on the edge of a power crisis.  As of Oct. 6, 80% of India’s 135 coal-powered plants had less than eight days of supplies left — more than half of those had stocks worth two days or fewer.  The power crisis would likely have an immediate impact on India’s nascent economic recovery, created by industrial activity instead of services, according to Kunal Kundu, India economist at Societe Generale.  Millions of Americans will be one step closer to receiving a Covid booster shot when a key FDA panel meets this week to debate extra doses of the Moderna and J&J vaccines.  The Biden administration hopes boosting the U.S. population will ensure long-term and durable protection against severe disease.  “Even with delta, the current vaccines are holding up quite well as far as hospitalization and severe disease,” said Norman Baylor, former director of the FDA’s vaccines office.  Treasurys were relatively flat in early Tuesday, trading ahead of the August job openings reports.  The 10-year edged higher to 1.6137%, while the 30-year ticked lower to 2.156%.

Yesterday’s price action whipsaw was likely quite disappointing for those trying to buy the morning rally in hopes it would zoom higher as it has in recent dips.  However, this time, the bears seem to be willing to fight, and for a good reason. First, soaring energy prices are and will continue to pressure the inflation worries, with all products moving higher as a result. In addition, with winter on the way keeping your home warm will be double the cost or more than just last year. Finally, with food, energy, and shelter costs consuming a more significant portion of income, companies may find it challenging to compete for the remaining disposable income.  The consensus suggests the JOLTS report could top 11 million job openings today and could move the market, but I suspect we will again see choppy price action as we wait for JPM earnings, a reading on CPI, and the FOMC minutes on Wednesday.

Trade Wisely,

Doug

Range-Bound Below the 50

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Range-Bound

After gapping up, Friday proved to be a day of rest with the indexes chopping and range-bound below their 50-day averages.  Unfortunately, we could see more of the same chop today with the Federal holiday, Columbus Day, closing the bond markets and banking.  In addition, with no earnings events or Economic calendar reports finding inspiration could be challenging.  We may, In fact,  have to wait until Wednesday when JPM kicks off earnings season and investors search for taper clues in the FOMC minutes later the same day.  As we used to say in the Army, hurry up and wait.

Asian markets traded mixed overnight with tech surging.  European markets trade mixed but mostly lower this morning, as the U.S. point to a lower open to begin the week with oil surging over $81 per barrel. 

Economic Calendar

Earnings Calendar

Although we have nine companies listed on the earnings calendar, none of them are confirmed.  Consequently, there are no notable reports this Monday. 

News & Technicals’

Merck said it asked the FDA to authorize emergency use of its experimental antiviral pill to treat mild-to-moderate Covid-19 in adults.  Phase three clinical trial data showed that the drug molnupiravir reduced the chances that patients newly diagnosed with Covid were hospitalized by about 50%.  The experimental drug could be available to Americans by late this year.  Southwest has canceled more than 1,800 flights over the weekend.  The Dallas-based airline blamed the disruptions on air traffic control issues, bad weather, and staffing shortfalls.  The energy crises in mainland China and Europe are the latest to roil shipping. Capital Economics noted that the number of ships waiting outside Chinese ports had jumped again in recent weeks.  Factory shutdowns in Vietnam, where many firms moved manufacturing amid the U.S.-China trade dispute, have also affected the production of many goods.  U.S. bond markets are closed due to the Columbus Day Federal Holiday.

The indexes spent most of the day Friday chopping and range-bound as they struggled to find the energy below their 50-day averages.  With the bond markets and banking closed for Columbus Day, I would not be all that surprised to see the choppiness continue today.  With nothing on Economic Calendar and no verified earnings reports, we struggle to find inspiration.  Perhaps the political debt ceiling wrangling and sound bite jousting over the social programs bill could inspire, but it is more likely to inject volatility into the chop.  This week traders will search for clues of taper in the Wednesday FOMC minutes and the kickoff of 4th quarter earnings with the big banks with JPM Wednesday morning. 

Trade Wisely,

Doug

Bulls Recovered Ground

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Bulls Recovered

The bulls recovered a lot of ground in yesterday’s short squeeze but fell short of breaking downtrends or breaching price resistance levels.  With bonds on the rise this morning, there is a lot at stake as we wait on the Employment Situation report.  Consensus is looking for a growth of 500,000 nonfarm payrolls.  There is a fine line here; an overly robust report could set the stage for a Fed taper, or a miss on the expectation could both bring back the bears.  What do we love the most; jobs or newly printed money? That could be the question of the day?

The Chinese market reopened after a 4-day holiday with a modest rally as the Nikkei surged 1.34%.  European market trade cautiously lowers this morning as they wait on the U.S. Jobs data.  However, U.S. is trying to put on a brave face ahead of the data pointing to modest gains ahead of the release. So will Friday be a winner or loser?  Your guess is as good as mine. So let’s hurry up and wait.

Economic Calendar

Earnings Calendar

We have no notable reports on the Friday earnings calendar as we make our way toward the 4th quarter reports that begin next week.

News & Technicals’

Ireland, which held out against the global minimum tax, gave in yesterday, raising its corporate tax rate from 12.5% to 15%.  The new rate will affect 1556 companies in Ireland employing 500k people, including AAPL, GOOG, AMZN, and FB. In addition, the Senate Democrats passed the short-term debt ceiling increase to allow a 450 billion limit that should get the government to December 3rd.  The bill will not move to the U.S. for a vote.  Tesla officially moved its headquarters from Palo Alto, California, to Austin, Texas CEO Elon Musk announced at its 2021 annual shareholder meeting.  In April 2020, on a Tesla earnings call, Musk lashed out at California government officials calling their temporary Covid-related health orders “fascist” in an expletive-laced rant.  Fed Governor Lael Brainard should figure prominently as President Joe Biden weighs who will chair the central bank and specifically supervise banks.  Even without getting the chair’s position, Brainard can be a major influence on banks. If she is not nominated as chair, she’s a good bet to be named the vice chair for supervision.  There are likely three areas where her influence would be most felt: Climate change, central bank digital currency, and getting banks to raise capital during prosperous times.  Treasury yields traded higher on Friday morning, with the 10-year hitting 1.601% before setting back down to 1.598%.  The 30-year climbed to 2.157%.

The bulls recovered a lot of ground yesterday on the technical front, squeezing out short traders as the Dow tested its 50-day average as resistance.  The Spy came close to a 50-day average test but ran into some price resistance, as did the QQQ, before pulling back, leaving behind some shooting star candle patterns.  The overall downtrends remain intact as we turn out attention to the Employment Situation number.   Consensus is looking for 500,000 nonfarm payroll increases and expects unemployment to fall from 5.2% to 5.1%.  With futures relatively flat ahead of the report, a hopefulness job grew but an evident uncertainty as we wait.  A strong number could set the stage for a Fed taper to begin, bringing out the bears.  So buckle up it could prove to be wild price action morning. 

Trade Wisely,

Doug

Short-term Debt Ceiling Solution

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debt ceiling solution

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?

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Dead Cat Bounce

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

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Tech Under Pressure

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

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Short Squeeze Rally

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

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Feisty Bears

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 3rd 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

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Modest Relief Rally

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

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Rapid Rise in Bonds

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