Significant Technical Damage

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Significant Technical Damage

With worries, the Evergrande default contagion could spread significant technical damage to the index charts yesterday.  Although the significant overnight reversal certainly relives yesterday afternoon’s short-term oversold condition, it does not relieve the extremely high price volatility danger.  Consider the overhead resistance and the very real possibility of substantial intraday whipsaws.  The Evergrande problem is just beginning, not over, and we have an FOMC meeting just around the corner.  Emotions are high, so trade wisely.

With China markets still closed for a holiday, the NIKKEI sold off 2.17%, monitoring Evergreade developments.  This morning, European markets are in relief rally mode, seeing green across the board trying to overcome some of yesterday’s selloff.  Ahead of Housing numbers and an FOMC meeting decision just around the corner, the U.S. futures point to a substantial gap up, this time punishing those that held short positions overnight.  Stay focused as substantial intraday whipsaws are possible, making for very high-risk trading. 

Economic Calendar

Earnings Calendar

We have just 11 companies listed on the earnings calendar, with most of several unconfirmed reports.  Notable reports include FDX, ADBE, ACB, AZO, CBRL, NEOG, SFIX.

News & Technicals’

With government funding expiring at the end of September, Treasury Secretary Janet Yellen has said the U.S. would likely not be able to pay its bills sometime in October if Congress does not suspend the debt limit. As a result, Congress will attempt to include a debt ceiling suspension that will kick the can down the road funding the government through December.  Economists expect Chinese officials to stem the spillover from liquidity issues at Evergrande, the country’s largest property developer, before it slams the banking system and bleeds into foreign financial centers. But strategists also say Beijing needs to act quickly to restructure Evergrande because markets are becoming nervous and hurting sentiment.  Early this morning, the yield on the 10-year Treasury notes dropped 17 basis points to 1.3220%, while the 30-year fell 15 basis points to 1.8625%. 

Yesterday created significant technical damage in the index charts, and likely shook investor confidence to the core.  However, a substantial overnight reversal is underway to punish any short traders who chose not to take profits during yesterday’s rout.  The T2122 indicator was signaling a short-term oversold condition and with a hopefulness that Beijing will step in to curb the credit crisis in the aftermath of the Evergrande default watch for a robust short-squeeze relief rally.  That said, be very careful as we approach resistance levels and watch for possible whipsaws because the bear may not give up so easily this time around.  The big emotional gap up this morning makes for high-risk long entries, especially when you consider the very high implied volatility and FOMC decision just around the corner.  I suspect the rollercoaster ride is not over, considering the considerable decline in bond yields this morning. 

Trade Wisely,

Doug

Evergrande Default

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Evergrande Default

The next shoe drops as the liquidity issues of the Evergrande default create shock waves around the world.  The dip buyers on Friday will feel considerable pain this morning due to the weekend reversal, and the technical damage to the index charts signals tremendous uncertainty ahead. Finally, with an FOMC meeting just around the corner, will bulls defend the or will the bears continue to push lower at the open of today trading? 

Asian markets traded mixed overnight, with the Hong Kong plunging 3.30% and ASX dropping 2.10%. Additionally, this morning, European markets are decidedly bearish, with the DAX, CAC, and FTSE indexes down more than 2%. Finally, U.S. futures point to a mean and punishing weekend reversal, with the Dow signaling a gapping down more than 500 points. So get ready for a wild ride. 

Economic Calendar

Earnings Calendar

To kick off the new trading week, we have 17 companies listed on the earnings calendar, but many of them are unconfirmed. So the only notable report today would be from LEN.

News & Technicals’

Evergrande, the Shenzhen-based company, faces a default on its debt burden of roughly $300 billion. The crisis has echoes of the Lehman Brothers bankruptcy, which marked its 13-year anniversary last week, a development that at the time sent shockwaves through global markets. So the question is it a so-called too big to fail, and the government comes in to save the business? In addition, the U.S. is tiring to smooth the tensions with France after they recalled its ambassadors, creating another geopolitical crisis.  On Sunday, Treasury Secretary Janet Yellen asked Congress to raise the federal debt ceiling as the risk of default draws near.  Remarkably as the debt ceiling looms, the U.S. dollar is on the rise this morning due to the liquidity crisis in China.  As a result, bonds are falling hard this morning, with the 10-year dropping to 1.3633% and the 30-year falling to 19030%.

It would seem the liquidity issues of the Evergande default did make its way into the U.S. markets with a big over the weekend reversal.  This morning, traders will wake to the SPY well below its 50-day average and the QQQ gapping down to test its 50-day as support.  In one fell swoop, the DIA will wipe out nearly two months of gains, and the IWM will gap below its 200-day average.  Ouch!  The question is, will the bulls defend, or will the bears continue to push the indexes lower.  If that were enough uncertainty to deal with, we have an FOMC meeting and the possibility of tapering easy money policies on the lips of the committee.  With so much uncertainty, price volatility is likely to become very challenging.  Experienced day traders will likely have the edge, and the buy the Friday dip buyers get severely punished.  So fasten your seatbelt tightly; it’s likely to be a very bumpy ride today.

Trade Wisely,

Doug

Another Punishing Whipsaw

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Even after the surprise increase in retail sales, the price action produced another punishing whipsaw to test recent lows after gaping up at the open.  The wild volatility favors the experienced day traders but has likely left everyone else with little to no trading edge due to the extreme whips.  I wish I could say it’s over, but honestly, I think there is more uncertainty to come with the FOMC meeting scheduled for next week.  That said, plan your risk carefully as we slide into the weekend.

Asian markets finished the week with a bit of relief rally overnight, facing the enormous uncertainty of an Evergrande default.  This morning, European markets trade in the red across the board with modest losses as UK retail sales fall.  With a very light day of earnings data and a reading on Consumer Sentiment later this morning, U.S. futures are uncharacteristically muted, pointing to a modestly lower open. 

Economic Calendar

Earnings Calendar

We have just 13 companies listed on the Friday earnings calendar, with only two verified. So the only somewhat notable report for today is that from MANU.

News & Technicals’

A key FDA panel meets Friday to debate and vote on Pfizer and BioNTech’s application to offer booster shots to the general public.  The meeting comes as some scientists, including at least two at the FDA, say they aren’t entirely convinced every American who has received the Pfizer vaccine needs extra doses at this time. French officials in Washington canceled a gala at their compound over frustration with the new security partnership between the U.S., U.K., and Australia. The development comes after France expressed outrage over a new partnership that, in part, ends a long-standing submarine contract between Australia and France.  Snowed under its crushing debt of $300 billion, Evergrande is so huge that the fallout from any failure could hurt not just China’s economy. Contagion could spread to markets beyond China. The U.S. Treasury’s are moving opposite of each other this morning, with the 10-year advancing to 1.334% and the 30-year declining to 1.877%.

After a disappointing Jobless claims report and a surprise increase in the retail sales number, the market once again opened with a gap up but quickly found sellers producing another punishing whipsaw.  However, as the day wore on, the bulls buckled down and went to work defending recent price lows in the indexes.  Unforunintly, by the end of the day, the price action left us with more questions than answers, with the DIA remaining under its 50-day while the SPY and QQQ held their bullish trends. Additionally, today we will get the latest reading on the Consumer Sentiment at 10 AM Eastern that could create some price volatility. Finally, as we slide into the weekend, the question we all need to answer for ourselves is, do I feel I have an edge?  Intraday traders could answer that question, yes, but swing and position traders may feel much more uncertain about the path forward.

Trade Wisley,

Doug

Jobless Claims and Retail Sales

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Jobless Claims and Retail Sales

This morning’s question is whether the Jobless Claims and Retail Sales numbers support yesterday’s relief rally or if the bears find another reason to attack?  The DIA and IWM are both in a precarious situation concerning their 50-day averages.  On the other hand, the SPY and QQQ successfully held bullish trends with yesterday’s bounce.  So get ready for some price action volatility as the market reacts to this data.  We could easily experience a short squeeze if the data is good or see the index charts suffer substantial technical damage if the market reacts negatively.  Trade wisely!

Asian markets closed mostly lower overnight with worries of an Evergrande default and casinos stocks continuing to tumble due to possible Chinese regulation changes.  However, European markets see green across the board this morning with modest gains.  Ahead of potentially market-moving data, U.S. futures trade slightly in the red at the time of this report, but anything is possible by the open. 

Economic Calendar

Earnings Calendar

Although we have 16 companies listed on the earnings calendar, only one confirmed report from FANDY is not noteworthy.  The market will have to elsewhere to find inspiration.

News & Techincals’

The housing authority has notified China’s major banks that Evergrande Group won’t be able to pay loan interest due Sept. 20. In addition, regulators have warned of broader risks to the country’s financial system if the company’s $305 billion of liabilities can not be contained.  Rising energy prices as we head into the winter are becoming a major concern in Europe and making the market nervous.  What’s more, the run in energy prices is not expected to end anytime soon due to low wind output and the rising commodity prices for carbon.  Who could have guessed that massive amounts of money printing would have a negative effect on energy prices?  Hmmm!  Treasury yields moved slightly higher this morning, with the 10-year trading up to 1.306% and the 30-year advancing to 1.871% ahead of jobs of and retail data. 

The technicals remain precarious for the DIA and IWM as all eyes turn to Jobless Claims and Retail Sales data before the market opens.  Should the bears find a reason to attack, it could create significant technical damage in the index charts and seriously shake investor confidence after yesterday’s hopeful relief rally.  On the other hand, if the bulls can find inspiration, yesterday’s bounce off the bullish trend in the SPY and QQQ could spark a substantial short squeeze.  One can only guess what the reaction might be, so get ready for a potentially wild price action open where anything is possible.  Remember that the reaction in the premarket futures has quickly reversed at the open in the last few trading days. So take a breath and watch price action before leaping in, and even then, prepare for whipsaws or even complete reversals.

Trade Wisely,

Doug

Inflation Brings Out the Bears

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Inflation

A reduction of one-tenth of one percent was not enough to convince the bears to go back to sleep as the CPI reported a 5.3% rate of inflation.  The DIA and IWM failed their 50-day averages, and the SPY closed the day, hovering less than half of one percent above its 50-day.  With the Industrial Production expected to decline today, could it continue to inspire the bears?  Maybe but I suspect a choppy day of price action as we wait for the Jobless Claims and Retail Sales numbers coming before the open Thursday. 

Overnight Asian markets tumbled after China’s retail sales data came in at 2.5% rather than the expected 7% growth estimate.  European markets trade mixed but mostly lower this morning in reaction to the China data and U.S. inflation.  However, once again, here in the U.S., futures currently point to a bullish open. So will it be another pop and drop, or will the bulls dig in and defend a day before our reading on Retail Sales?

Economic Calendar

Earnings Calendar

We have a very light day on the earnings calendar with just eight companies listed.  Notable reports include JKS and WEBR.

News & Technicals’

According to a projection by NBC news, Governor Newsom survived the recall vote and will retain his office.  Apple shares slid lower yesterday during its announcement of new product upgrades though the company expects a super cycle of device upgrades by consumers.  North Korea launched another ballistic missile off its east coast as the Chinese Foreign Minister visited Seoul.  Japanese Prime Minister said the missile launch is simply outrageous and is a threat to the peace and security of the region.  SEC Chair Gary Gensler said they are working overtime to create a set of rules to oversee the volatile cryptocurrency markets.  U.S. treasuries trade mixed Wednesday morning, with the 10-year rising to 1.28% and the 30-year declining to 1.845%. 

Though the CPI said that inflation had moderated by one-tenth of a percent in August, the bears engaged after gapping up at the open.  The DIA suffered the worst of the technical damage failing at its 50-day average and confirming a lower low.  The worries of inflation also pushed the IWM back below its 50-day, missing its 200-day by less than half of one percent.  The SPY closed the day within striking distance of its 50-day average should the bears find some additional energy today.  Amazingly big tech held up very well amidst the selling, and the VIX indicated no elevation in fear.  Watch the Industrial Production at 9:15 AM eastern is expected to decline slightly, but if it were to miss the estimate, it could serve as another stumbling block today.  As you plan forward, remember we have Retail Sales numbers on Thursday along with Jobless Claims before the open, adding to the newsy intrigue of this week.

Trade Wisely,

Doug

CPI Number

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CPI Number

Yesterday’s big gap up quickly lost energy as the market spent the day gyrating with intraday whipsaws waiting on the CPI number coming out before the bell this morning.  Economists expect inflation to remain hot, with a year-over-year increase of 5.4% in August. However, with GDP revised lower, increasing inflation, and newly proposed tax increases, uncertainty is growing, so plan your risk carefully.  Later this week, other possible stumbling blocks include Retail Sales and Consumer Sentiment, so stay frosty, my friends.

During the night, Asian markets traded mixed as Evergrande warned of a possible default on its massive debt due to property sales declining.  European markets trade mixed but relatively flat with eyes on the pending read of inflation in the U.S.  However, the premarket pump shows modest gains across the board in the U.S. futures as we wait for the CPI number. So buckle up; it could be a wild ride as the market digests the impacts of inflation.

Economic Calendar

Earnings Calendar

On the Tuesday earnings calendar, we have just 14 companies listed, with several that are unconfirmed.  Notable reports include ASPU, IBEX, and SKIL. 

News & Technicals’

It seems the entire world is waiting and watching to see what happens when the CPI number comes out at 8:30 AM Eastern.  According to reports, economists expect inflation to continue running hot at a pace of 5.4% increase year over year in August.  At the same time, the congressional democrats propose new taxes as they attempt to raise the corporate tax rates to 26.5% and individual top tax rates to 39.6%. In addition, the proposal includes a surcharge on individual incomes above $5 million and a capital gains tax of 25%.  Treasury yields are rising this morning, with the 10-year trading up to 1.341% and the 30-year increasing to 1.917% in anticipation of the CPI reading.  We also have the Apple overly dramatic reveal of its newly upgraded products, but there is a concern about production delays due to chip shortages.

On the technical front, not much changed yesterday as the markets whipsawed due to intraday volatility.  The DIA remained below its 50-day average even after snapping a 5-day selling streak while the SPY and QQQ cling to bullish trends, mainly with the buying support of big tech.  With the Atlanta Fed downgrading the GDP estimate by 41% to 3.7%, the worry about a slowing economy amid rising inflation and proposed tax increases the uncertainty about the path forward.  How the market reacts to the CPI number this morning is anyone’s guess, so remain focused and flexible.  Also, remember we have still have the nail-biter reports of Retail Sales and Consumer Sentiment later this week, keeping traders and investors on the edge of their seats. 

Trade Wisely,

Doug

Bull Trap

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Bull Trap

Friday’s morning gap set a bull trap that likely shook investor confidence as Produce Prices inked a new recorded high.  Something to consider this morning with the futures pushing for a significant gap up open this morning ahead of the Tuesday CPI number.  The VIX closed above a 20-handle on Friday; prepare for some wild price action to begin the week that could include some nasty big point whipsaws or full-on reversals as we wrangle with higher inflation, a slowing economy, a debt ceiling, and the possibility of taper on the horizon. 

Overnight Asian traded in a choppy session as EV stocks now come under Chinese regulatory scrutiny.  However, European markets are decidedly bullish, trying to shake off inflation concerns.  U.S. futures point to a substantial bullish gap trying to put on a brave face with CPI, Retail Sale, and Consumer Sentiment heading our way later this week.  With the VIX elevated, prepare for just about anything as we bounce toward overhead resistance levels.

Economic Calendar

Earnings Calendar

We kick off the trading week with 25 companies listed on the earnings calendar, with a significant number of them unconfirmed.  The notable report is ORCL after the bell today.

News & Technicals’

The markets had a rough end to last week after Produce Prices came showing wholesale prices up 8.3%, the highest level ever recorded. Then, on Tuesday, we will get another reading on inflation with Consumer Price Index that may be critical to the Fed’s decision on tapering. Finally, on Thursday, it will be Retail Sales figures and Jobless Claims with another reading on Consumer Sentiment, Friday, which currently sets at a 2011 low.  Tuesday will also bring the hotly contested recall election to a vote.  With the debt ceiling looming, Senator Manchin said he would not vote for the $3.5 trillion budget bill adding that there’s no way to meet the September 27th deadline.  With that in mind, it seems somewhat odd that the Treasury yields are trading lower this morning.  This morning the 10-year dipped to 1.336%, and the 30-year fell to 1.922%, with the deadline looming. 

Friday morning futures set a bull trap gapping higher at the open but quickly reversing and likely shaking investor confidence.  The DIA suffered the worst technical damage, closing well below its 50-day average, creating a lower and entering a downtrend technically.  However, the SPY and QQQ defiantly held onto the current uptrend even as the Friday selling spilled over into the tech giants.  U.S. futures are in bounce mode this morning but be very careful rushing in trades.  Buying this dip could be very dangerous should the CPI come in hotter than expected on Tuesday.  As we gap up toward price resistance levels, we can’t rule out another bull trap or wild whipsaw.  With the VIX above a 20 handle, be prepared for some challenging volatility to begin the week.

Trade Wisely,

Doug

Minor Technical Damage

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Minor Technical Damage

After several days of selling, the DIA is the only index that suffered minor technical damage breaking the trend and closing below its 50-day average. On the other hand, the SPY and QQQ indexes display bullish consolidations holding onto trends thanks to the tech giants’ strength that continues to find buyers offsetting the high number of stocks below their 200-day averages.  Today we will get a read on inflation with the PPI number released before the bell.  Expect some morning price volatility as the market reacts.

Asian markets closed the day green across the board as Chinese video game stocks bounced back, lead by the HIS up 1.91%.  European markets are also in a bullish mood this morning, sporting modest gains across the board.  As a result, U.S. futures point to a substantial overnight reversal ahead of producer price numbers.

Economic Calendar

Earnings Calendar

The Friday earings calendar brings us very light with just nine companies listed and only four verified.  The only notable report is KR which reports before the bell.

New & Technicals’

After the bell yesterday, the President rolled out mandates on vaccinations on companies with more than 100 employees.  However, there is already pushback from companies, and lawsuits are likely on the way.  The rapid spread of the delta variant hit a 7-day average of 153,000 infections per day, but sadly, even the fully vaccinated are contracting the virus.  Ireland, France, Sweden, Portugal, Greece, and Bulgaria are among the countries reporting the highest numbers of new cases per 100,000 population.  The SEC is again fining Wells Fargo after they failed to execute a mortgage loss mitigation program.  The Office of the Comptroller of the Currency said the bank engaged in “unsafe and unsound practices,” resulting in the $250 million fine.

The DIA finished the day closing below its 50-day average, adding minor technical damage to the index chart.  However, the SPY and QQQ have suffered no technical damage, with averages dominated by the tech giants that continue to find buyers despite the extremely high valuations.  The VIX closed the day modestly elevated, suggesting some uncertainty among traders but indeed no panic so far.  This morning, the market’s attention will turn to inflation as we wait on the latest PPI numbers that economist consensus expects to have declined.  Ahead of the number, U.S. futures are powering higher, with a substantial gap up priced seemingly not concerned about what the PPI might say.   Be prepared for some morning volatility as the market reacts and deals with overhead resistance levels.

Trade Wisley,

Doug

Stark Imbalance

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Uncertainty has begun to raise its ugly head with a stark imbalance between the 7 to 9 tech giants doing all the heavy lifting with just 47% of stocks trading above their 200-day averages. So with an ECB decision pending and Jobless Claims before the bell, will the bulls find the inspiration to defend, or will the bears find an opening to attack?  Your guess is as good as mine, but the surge that occurred yesterday into real estate, utilities, and consumer staples looking for some safety is noteworthy.

Overnight Asian markets traded mostly lower, with Hong Kong plunging 2.30% on the Chinese gaming crackdown worries.  This morning, European markets see only red as they await the ECB decision, with inflation hitting a 10-year high.  U.S. futures also hint at a lower open with eyes on the ECB and Jobless Claims that have become troublesome of late. So buckle up; it could be a volatile open.

Economic Calendar

Earnings Calendar

We have our busiest day of the week on the Thursday earnings calendar, with 31 companies listed, several unconfirmed.  Notable reports include AFRM, PLAY, HOFT, JILL, LAKE, LOVE, RLGT, COOK, VRNT, ZS, & ZUMZ.

News & Technicals’

Chinese regulators summon Tencent, NetEase, and other game companies for interviews, reminding them about the restrictions on game time for children. As a result, Hong Kong plunged 2.30% as Tencent shares fell 8.48% and NetEase dropped 11%.  According to the South China Morning Post, Beijing has temporarily frozen game approvals.  Treasury Secretary Janet Yellen warned House Speaker Nancy Pelosi that the mere specter of a U. S. default could have drastic consequences.  Yellen said lawmakers have until some point in October before the department runs out of funds in its extended efforts.  Today, we will hear about the ECB’s plan to taper and battle inflation, which is now at a 10-year high.  U.S. Treasury yields dip as we wait, with the 10-year trading down to 1.321% and the 30-year falling to 1.941%. 

I don’t believe I’ve ever witnessed the stark imbalance between the haves and the have not’s in the market.  Only 47% of U.S. stocks are above their 200-day moving averages as 7 to 9 tech giant companies continue to do all the heavy lifting.  That said, the QQQ and SPY have maintained their bullish trends as long as those tech giants don’t stumble.  The DIA, on the other hand, is beginning to show some technical damage falling below the uptrend and putting in a lower high. So the question to be answered today is will the bulls defend the DIA 50-day average as support?  With Jobless Claims and an ECB decision just around the corner, your guess is as good as mine.  There is no reason to be running for the doors just yet, but caution flags are flying as market internals continue to raise uncertainty. 

Trade Wisely,

Doug

Chose to Ignore

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Chose to Ignore

The market chose to ignore the disappointing jobs numbers and the unemployment benefits cliff as we slid into the holiday weekend with the assumption this will allow the Fed to continue printing. As a result, the index trends remain very bullish, with the DIA, SPY, and QQQ consolidating within striking distance of new record highs.  With a light week of economic and earnings data, the market may become more sensitive to geopolitical news, or we may see a light and choppy week of price action. 

Overnight Asian markets mostly rallied as Chain’s exports topped expectations.  However, European markets trade modestly bearish this morning, concerned about the declining jobs and consumer activity.  Here in the U.S., futures point to a flat mixed open that could prove to be a light volume day as traders extend their holiday with a bit of vacation time. 

Economic Calendar

Earnings Calendar

We have a light day on the Tuesday earnings calendar with 18 companies listed and several unconfirmed reports.  Notable reports include AMBA, AMWD, CHS, CRWD, DBI, NTES, & PVA.

News & Technicals’

Though a little surprising, the market chose to ignore the massive miss of the employment situation, likely due to the hope that the Fed will keep printing 120 billion a month rather than tapering.  As a result, Goldman has cut its GDP forecast for the second time in the last 30 days, citing pandemic impacts and the fading of fiscal stimulus. Moreover, yesterday was the end of the unemployment bonuses, and apparently, millions have exhausted their unemployment benefits in total, raising concerns with the declining consumer sentiment and confidence.  However, the U.S. Treasury yields seem to have shrugged off the disappointing jobs data, with the 10-year rising to 1.353% and the 30-year trading up to 1.97%.

Technically speaking, the price action of the index charts appears to have no concern at all about the unemployment benefits cliff or the lackluster jobs numbers. On the contrary, the DIA, SPY, and QQQ remain bullish, all within striking distance of new record highs.  Over the last two weeks, the IWM has improved dramatically yet still has significant overhead resistance to overcome.  With a holiday-shortened trading week, light earnings calendar, and an economic calendar with no significant market-moving reports, it may be difficult for the bulls and bears to find inspiration. In addition, please keep in mind volume could be noticeably light today as many traders may have extended their long weekend with additional vacation time.  As I keep repeating, stay with the trend but guard against complacency if the market suddenly decides to care about the weakening economic data.

Trade Wisely,

Doug