Extended Condition

Extended Condition

Disappointing home sales and mortgage data produced a bullish but choppy price action as the indexes remained in a short-term extended condition.  Traders and investors will have to grapple with our most significant day of earnings so far this quarter, as well as Jobless Claims and the Philly Fed MFG data.  We may also see a market reaction to the pending ECB rate decision as they begin fighting record inflation.  Bullish earnings speculation remains strong but be careful not to overtrade and take some profits with the FOMC and GDP coming our way next week.

Asian markets traded mixed overnight as the Bank of Japan held trades steady.  European markets trade mixed with muted results as they wait on the ECB rate decision.  With a big day of market-moving data ahead, U.S. futures suggest a mixed open as I write this report but prepare for about anything as the market reacts to the results.  Market emotion is high, so don’t rule out the possibility of some significant point swings. 

Economic Calendar

Earnings Calendar

We have our most hectic day of the week on the earnings calendar, with more than 70 companies listed.  Notable reports include ABB, ALK, AAL, T, AN, DHI, DHR, DPZ, DOV, FITB, ISRG, KB, NOK, NUE, PM, SAP, & TRV.

News & Technicals’

According to reports, the European Central Bank could go big on its first rate hike in 11 years.  A new anti-fragmentation tool and a sizeable rate hike would come as the ECB deals with its primary mandate: price stability.  The eurozone inflation print for June came in at 8.6%, up from 8.1% in May, and German producer prices in June were 32.7% higher than a year earlier.  There had been concerns across the region that there could be a complete shutdown of gas supplies via the pipeline after it was closed earlier this month for maintenance.  However, data on operator Nord Stream’s website showed that flows increased from zero to 29,284,591 kWh/h for 0600-0700 Central European Time Thursday.  On July 10, the last day of operations before the maintenance work began, flows were roughly the same level, just above the 29,000,000 kWh/h.  Speaking to Parliament, Draghi said he was going to speak to President Sergio Mattarella and inform him of his intentions after failing to unite his fragile coalition government.  Last week, Mattarella rejected Draghi’s first resignation and asked him to lead more negotiations with lawmakers in the hope of avoiding snap elections.  United Airlines on Wednesday notched a key profit milestone in its pandemic recovery.  However, it said it will scale back its growth plans through 2023.  Airlines have reported strong demand as well as high costs for fuel and other expenses.  Microsoft eases hiring as economic concerns affect more of the tech industry but declined to specify which divisions will slow the hiring pace.  The company lowered its quarterly earnings guidance in June but attributed the move to changing exchange rates.  The Asian Development Bank has cut the growth forecast for China due to concerns over the country’s zero-Covid approach and strict lockdowns, which have also impacted its troubled property market.  As a result, gross domestic product growth for the world’s second-largest economy is expected to be at 4% in 2022, down from an earlier estimate of 5%, ADB said in a report published Thursday.  China’s continued “adherence to a zero-covid strategy in response to renewed outbreaks early in 2022 has triggered the reimposition of strict lockdowns,” the bank wrote in its report.  Treasury yields rose slightly in early Thursday trading, with the 2-year inverted trading at 3.23%, the 5-year at 3.18%, the 10-year at 3.04%, and the 30-year at 3.17%.

The short-term extended condition of the market, disappointing housing data, and some mixed earnings results produced a choppy day of price action, but overall the bulls won the day.  However, today will be our biggest day of earnings results so far this quarter which means anything is possible as traders react.  We also face a pending ECB rate decision; Jobless Claims that have recently experienced a slow creep upward as well as Philly Fed MFG data.  Unfortunately, the rising bond yields and 2/10 inversion continue to suggest a recession adding an element of uncertainty despite the hopeful bullishness of the recent relief rally.  So continue to expect challenging price action with overnight gaps and reversals in the days and weeks ahead.

Trade Wisely,

Doug

Bulls had a Really Good Day

Price resistance levels cut like butter as the bulls had a really good day following through from the overnight reversal with the Dow more than 1700 points off the low just four trading days ago.  There suddenly seems to be no concern that bond yields point toward a recession, and with the coming rate hike, the desire to hurry up and buy something is taking over.  However, be careful not to chase or overtrade, with the T2122 indicator suggesting a short-term overbought condition. 

Asia markets rallied strongly overnight in reaction to the U.S. buying surge, with the Nikkei leading the buying, up 2.67%.  However, European markets have reversed early bullishness after their inflation hit a 40-year high of 9.4%, worrying that Russia will shut down energy supplies.  U.S. futures have also reversed from early bullishness after mortgage demand dropped to a 22-year low as inflation-driven rate hikes damage home buying demand.  That said, don’t rule out the power of earnings and the fear of missing out as the wild volatility in price action continues.

Economic Calendar

Earnings Calendar

The Wednesday calendar has about 30 confirmed earnings reports.  Notable reports include ABT, ASML, BKR, BIIB, CMA, CCI, CSX, KMI, NDAQ, NTTRS, PACW, TSLA, & UAL.

News & Technicals’

Netflix lost nearly 1 million subscribers in the quarter after forecasting a dip of 2 million.  The company forecast 1 million net adds for the third quarter, below Wall Street estimates of 1.8 million.  Netflix is counting on changes, such as cracking down on password sharing and adding an advertising tier, to start in 2023.  Bitcoin surged as high as $23,800 Wednesday, up 8% in 24 hours and trading at levels not seen since mid-June.  Traders took comfort from the prospect of a rate hike from the Federal Reserve that is less aggressive than feared.  Ether climbed above $1,500 amid optimism over a highly anticipated upgrade to its network known as the “Merge.”  According to U.S. intelligence, Russia is laying the groundwork to annex parts of Ukraine.  “We’re seeing ample evidence and intelligence and in the public domain that Russia intends to try to annex additional Ukrainian territory,” National Security Council spokesman John Kirby told reporters at the White House.  Kirby that the U.S. observed a similar Russian playbook in 2014 ahead of the Kremlin’s annexation of Crimea, a Ukrainian peninsula on the Black Sea.  Citing supply chain challenges due to Russia’s war in Ukraine, Gupta said the two countries capture a large part of the market share.  Russia and Ukraine are the largest exporters of krypton — a gas used in chip production.  Semiconductors are used in everything, from mobile phones and computers to cars and home appliances.  Rising inflation and expectations of more monetary tightening are already causing a “consumer-led slowdown,” said Gupta.  Last week, a spike in reported numbers of homebuyers halting mortgage payments prompted many banks to announce their low exposure to such loans.  Across banks covered by Goldman Sachs, average exposure to property, including mortgages, was just 17%.  If more homebuyers refuse to pay their mortgages, the poor sentiment would reduce demand — and theoretically, prices — in a vicious cycle.  “It is critical for policymakers to restore confidence in the market quickly and to circuit-break a potential negative feedback loop,” Goldman Sachs chief China economist Hui Shan and a team said in a report Sunday.  Treasury yields dipped slightly in early Wednesday trading, with the 2-year inverted at 3.13%, the 5-year at 3.11%, the 10-year at 2.98%, and the 30-year trading at 3.15%. 

The bulls had a really good day on Tuesday, with the Dow closing up more than 1700 points from the low just four trading days ago.  The buying party continued after the bell, with NFLX jumping more than 6% despite losing nearly 1 million subscribers and declining revenue.   European inflation hit a 40-year high of 9.4%, with the risk of Russia shutting off the energy supply, yet the bulls push for a positive open fuelled by tremendous earnings speculation.  The T2122 indicator suggests a short-term overbought condition, but that does not mean we can’t go higher, as the fear of missing out is a powerful motivator.  That said, don’t allow greed to prevent you from taking some profits in case of a sudden reversal of sentiment comes into play.

Trade Wisely,

Doug

Pop and Drop

Pop and Drop

Although we began the trading week with an exuberant gap up, the fade into a pop and drop pattern at price resistance on weak volume left more questions than answers.  The price action left behind bearish engulfing and dark cloud cover candle patterns on the index charts but can the bear follow, or will the bull find the energy to defend?  With increasing earnings reports and a reading on Housing Starts and Permits before the bell, prepare for just about anything with a dose of high price volatility to test technical and price resistance.  Silly season is underway, so plan carefully and avoid trading as the drama unfolds.

 Overnight Asian market seemed to struggle with direction closing the day with mixed results.  European markets trade in the red across the board this morning seemly uncertain about the earnings results.  However, U.S. futures again point to a gap up open ahead of possible market-moving data as the high earnings speculation continues.  Expect another bumpy day of price action, and the bulls and bears duke it out at technical and price resistance levels.

Economic Calendar

Earnings Calendar

We have about 20 confirmed earnings reports to deal with on the Tuesday calendar.  Notable reports include ALLY, CALM CFG, HAL, HAS, IBKR, JNJ, JBHT, LMT, MAN, NFLX, NVS, TFC, & UCBI.

News & Technicals’

The majority state-owned Gazprom said Monday that it is not in a position to comply with gas contracts with Europe due to unforeseeable circumstances.  Germany’s energy firm Uniper confirmed to CNBC that Gazprom had claimed “force majeure” on its supplies.  “We consider this unjustified and have formally rejected the force majeure claim,” Lucas Wintgens, spokesperson for Uniper, told CNBC’s Annette Weisbach.  New data from blockchain analytics firm CryptoQuant shows that miners are rapidly exiting their bitcoin positions.  14,000 bitcoin, or more than $300 million at its current price, were transferred out of wallets belonging to miners in a single day — and in the last few weeks, miners have offloaded the largest amount of bitcoin since Jan. 2021.  According to Treasury Department data released Monday, China’s portfolio of government debt in May dropped to $980.8 billion.  It marked the first time since May 2010 that China’s holdings fell below the $1 trillion mark.  Netflix announces its second-quarter earnings results on Tuesday.  The company previously projected a loss of 2 million subscribers for the period.  Netflix is adding an advertising tier and cracking down on password sharing to reinvigorate growth, but those maneuvers won’t kick in until later this year.  Goldman Sachs has slowed its hiring and is looking to cut the fees it pays vendors as the investment bank prepares for tougher times.  But New York-based Goldman has another tool in its arsenal to keep expenses under control: A potential return of year-end job cuts, according to a person with knowledge of the situation.  No target exists yet for headcount reduction, according to the person, and the plans are dynamic and could change.  Treasury yields ticked higher in early Tuesday trading, with the 2-year inverted over the 5,10 & 30-year bonds at 3.17%.  The 5-year trades at 3.10%, 10-year at 2.99%, and the 30-year rose to 3.16%.

We kicked off the week with an exuberant gap up, but the early rally quickly faded into a pop and drop at price resistance leaving behind bearish engulfing candle patterns on the index charts.  Indeed a concerning development if the bears can follow through to the downside today.  However, if the bulls find the energy to defend, we may yet have a chance to break overhead price resistance levels finally.  Today we face a growing number of earnings reports to keep the price volatility high with our first big tech NFLX, reporting after the bell.  We will also get a read on the Housing Starts and Permits that consensus suggests moved up slightly over the last month.  The rising bond prices and the sharp reversal in the dollar pushing commodities higher add some uncertainty, so stay focused on the price, continuing to respect resistance levels. 

Trade Wisely,

Doug

A Needed Relief Rally

Although bank earnings continue to disappoint and warn of rising default risks, the bulls kicked off a needed relief rally on Friday.  Speculation and willingness to dive headlong into earnings risk remain surprisingly high, considering the economic conditions.  So, with high emotion, expect overnight gaps, intraday whipsaws, and stocks that miss the lowered expectations to be severely punished.  Watch earnings dates before buying, respect overhead resistance levels, and fear-of-missing-out trade decisions.

Asian markets rallied overnight in reaction to the U.S. bounce, even as oil prices rose 2%.  European markets are also in a bullish mood this morning, seeing green across the board.  Ahead of more big bank earnings, U.S. futures look to extend Friday’s rally pointing to a gap up open before the data.  Expect challenging price action and keep an eye on overhead resistance levels for the possibility of a pop and drop. 

Economic Calendar

Earnings Calendar

This week we pick up the pace of 3rd quarter earnings.  Notable reports include BAC, SCHW, GS, IBM, PLD, & SYF.

News & Technicals’

Celsius is down to $167 million “in cash on hand,” which they say will provide “ample liquidity” to support operations during the restructuring process.   However, according to its bankruptcy filing, Celsius owes its users around $4.7 billion, and there’s an approximate $1.2 billion hole in its balance sheet.  Restaurants and diners alike are feeling the pinch from the industry’s labor shortage.  According to the National Restaurant Association, the industry is still down 750,000 jobs — roughly 6.1% of its workforce — from pre-pandemic levels as of May.  In the first quarter, customers mentioned short staffing three times more often in their Yelp reviews than in the year-ago period, according to the restaurant review site.  The battle to become the U.K. Conservative Party’s next leader — and the country’s next prime minister — heated up over the weekend.  The five candidates vying for the top job looked more like enemies than colleagues as they went head-to-head in a televised debate on Sunday.  They clashed over taxes, Brexit, and trans rights in the latest leadership debate, questioning each other’s office records and political and ideological perspectives.  Earnings could be a main driver of stocks in the week ahead, after a roller-coaster ride on changing sentiment about how much the Federal Reserve will raise interest rates.  Hot inflation data initially sparked speculation the Fed could raise interest rates by a full percentage point.  By the end of the week, strong data and comments from Fed officials quashed those expectations.  In the week ahead, investors are looking to housing data and expect earnings from a broad swath of companies to steer stocks.  Treasury yields rose in early Monday trading, with the 10-year climbing to 2.96% and the 30-year pricing at 3.12%.  Unfortunately, the 2-year continues to point toward a recession at 3.15%, inverted over the five, ten, and thirty-year bonds. 

Despite the disappointing bank earnings, the speculation that lowered earnings estimates will deliver better than expected results kicked off a needed relief rally.  The good news is that the relief was overdue, and we have a little break from the heavily bearish economic reports this week.  The bad news in this all-or-nothing market is the T2122 indicator is quickly reaching the short-term overbought condition with a GDP report and FOMC rate increase just a week away.  As earnings reports ramp up, expect overnight reversals and intraday whipsaws to challenge even the most experienced traders.  With speculation remaining so high, keep in mind that companies that miss expectations will likely get severely punished, so plan carefully!   I believe we will see many disappointing results, so keep an eye on technical and overhead resistance levels for the location for bear attacks. 

Trade Wisely,

Doug

Defending 2020 Market Lows

Defending 2020 Market Lows

Although the earnings and economic data pointed to significant economic weakness, the bulls went to work defending 2020 market lows on Thursday.  However, the rally continued to show weak volume, and index prices remain under significant technical and price resistance.  So that raises the question, can they follow through with the second day of bullishness filled with market-moving earnings and economic reports?   We will soon find out but prepare for challenging price action by watching for whipsaws and possible complete reversals if the data inspires the bears. 

Asian markets closed mixed but mostly lower overnight as China’s GDP missed expectations.  European markets are, however, in bullish mode this morning, showing green across the board.  Ahead of a big day of data, U.S. futures defy weak economic conditions and inflation pointing to a bullish open even as bad bank results roll in.  Plan carefully headed into the uncertainty of the weekend.

Economic Calendar

Earnings Calendar

The bank majors dominate the earnings calendar today.  Notable reports include BK, BLK, C, PNC, STT, USB, UNH, & WFC.

News & Technicals’

On the one hand, Dimon said the U.S. “economy continues to grow and both the job market and consumer spending, and their ability to spend, remain healthy.”  “But geopolitical tension, high inflation, waning consumer confidence, the uncertainty about how high rates have to go, and the never-before-seen quantitative tightening and their effects on global liquidity … are very likely to have negative consequences on the global economy sometime down the road,” he warned.  The best way to stabilize oil prices is to boost supply, and alternatives to Russian oil are available to the world, said Mathias Corman, the secretary-general of the Organization for Economic Cooperation and Development.  On Thursday, U.S. Treasury Secretary Janet Yellen said a cap on Russian oil prices would be crucial to bringing down inflation.  Industry players told CNBC an improving macroeconomic picture, particular trading patterns, and further shakeout or “deleveraging” could help bitcoin and the crypto market find a bottom.  This could mean further downside for bitcoin to as low as $13,000, will remove the “last remaining weak hands.”  There have been high-profile collapses in the latest “crypto winter,” including lender Celsius and hedge fund Three Arrows Capital.  China eked out GDP growth of 0.4% in the second quarter from a year ago, missing expectations as the economy struggled to shake off the impact of Covid controls.  Analysts polled by Reuters had forecast growth of 1% in the second quarter.  However, retail sales in June rose by 3.1%, recovering from a prior slump and beating expectations for no growth from the prior year.  In the second quarter, mainland China faced its worst Covid outbreak since the height of the pandemic in early 2020.  Starbucks will close 16 U.S. stores, mostly on the West Coast, by the end of July because of safety concerns.  Six stores will close in Greater Los Angeles; six in Greater Seattle; two in Portland, Oregon; one in Philadelphia and D.C.  The move comes as more than 100 stores have voted to unionize since the end of 2021.  Bond yields declined slightly in early Friday trading, with the 2-year slipping to 2.93% and the 30-year dipping to 3.09%.  However, the 2-year remains inverted over five, ten, and 30-year bonds, pricing at 3.12% this morning. 

Disappointing bank earnings, rising jobless claims, and a near-record PPI reading started Thursday with an ugly gap down, but the bulls used that move to buy, defending 2020 market lows.   The T2122 indicator did show a short-term oversold condition at the morning gap down, but the rally is not very convincing so far.  Volume remained suspiciously low, and the indexes remain beneath significant technical and overhead resistance.  Today we face a bigger day of bank earnings, so if you’re a bull, let’s hope the JPM and MS result don’t become expand into a bearish 3rd quarter theme.  Adding to the potential price volatility are Retail Sales, Empire Start MFG., Import & Export Prices, Industrial Production, and Consumer Sentiment data to keep traders guessing as we head into the uncertainty of the weekend.  It could be a hectic day ahead, so plan carefully!

Trade Wisley,

Doug

Aggressively Hawkish FOMC

Thoughts of an aggressively hawkish FOMC ultimately won the day, as traders and investors tried to rally after the hotter-than-expected CPI reading of 9.1%.  Markets are now pricing in the possibility of a 100 basis point rate increase at the next meeting, bringing out the bears in the overnight futures.  Not only do we face the price volatility of big bank earnings this morning, but we also have Jobless Claims and another look at inflation with the Producer Price index.  Expect challenging price action in the days and weeks ahead as earnings ramp up, and we find out how companies faired as consumers faced tough spending decisions.

Asian markets closed mixed overnight as Singapore tightened its monetary policy.  Across the pond, European markets trade bearishly this morning due to the hot U.S. inflation.  Pondering more rate increases, the beginning of earnings season, and market-moving economic data, the U.S. futures currently point to a significant gap down ahead of the data release.

Economic Calendar

Earnings Calendar

Today is the official beginning of third-quarter earnings, so here we go with the silly season!  Notable reports include JPM, CTAS, CAG, ERIC, MS, & TSM.

News & Technicals’

“We’re seeing negative spillover effects from [the Russia-Ukraine] war in every corner of the world, particularly with respect to higher energy prices, and rising food insecurity,” Yellen said the Group of 20 finance ministers and central bank governors meeting in Bali.  “A price cap on Russian oil is one of our most powerful tools to address the pain that Americans and families across the world are feeling at the gas pump and the grocery store right now,” she added.  Traders are betting the Federal Reserve could raise its target fed funds rate by one percentage point at its July 26-27 meeting.  After June’s super hot consumer price index, market expectations began to climb, and they went even higher after the Bank of Canada raised its rate by 1%.  Investors on Thursday will look to Fed Governor Christopher Waller’s comments and June’s producer price report for more clues on what the Fed might do.  Cryptocurrencies have suffered a brutal come down this year, losing $2 trillion in value since the height of a massive rally in 2021.  While there are parallels between today’s meltdown and crashes past, a lot has changed since the last major bear market in crypto.  The crypto market has been flooded with debt thanks to the emergence of centralized lending schemes and so-called “decentralized finance.”  The collapse of the algorithmic stablecoin terraUSD and the contagion effect from the liquidation of hedge fund Three Arrows Capital highlighted how interconnected projects and companies were in this cycle.  Crypto company Celsius has started the process of filing for Chapter 11 bankruptcy protection.  According to a source, CNBC reported that the company’s lawyers were notifying individual U.S. state regulators of those plans, who asked not to be named because the proceedings were private.  Celsius made headlines a month ago after freezing customer accounts, blaming “extreme market conditions,” and joins a list of other high-profile crypto bankruptcies.  Bond yields rose in early Thursday trading, with the 10-year trading at 2.95% and the 30-year lifting slightly to 3.12%.  However, the most concerning is the expanding inversion of the 2/10 bonds as the 2-year rose to  3.19%.

The market tried to shake off the 9.1 inflation reading yesterday after gapping sharply lower, but the realization of an aggressively hawkish FOMC closed indexes lower on the day.  With the index charts now threatening a lower low, traders are betting the Fed to raise rates by 100 basis points just as we kick off earnings season.  Today we also face Jobless Claims that have started to creep up and another inflationary reading of the Producer Price Index.  Expect a challenging day of price action as the data is revealed, and plan your risk carefully into Friday with another round of likely market-moving data.  Inexperienced traders may be better served avoiding the risk and observing the drama from the sidelines to protect their capital!

Trade Wisely,

Doug

Waiting on the CPI

Waiting on the CPI

The Tuesday morning session quickly reversed the overnight session, only to reverse again in the afternoon session, waiting on the CPI and the uncertainty of what happens next.  The good news is that the choppy low-volume range-bound price action will likely end soon, but the big question is which way?  If the CPI doesn’t break the logjam, perhaps the PPI and the beginning of the 3rd quarter earnings will do the job.   However, expect price volatility to remain high the rest of the week as we face Retail Sales and Industrial Production numbers on Friday and another FOMC rate decision just around the corner.  Buckle up the silly season is about to begin!

During the night, Asian markets recovered from early losses to close the day with modest gains.  However, European markets are more pensive about the pending U.S. inflation data currently trading in the red across the board.  However, trying to put on a brave face, U.S. futures trade in the green despite the declining mortgage applications and the pending CPI number, which could change everything by the open.

Economic Calendar

Earnings Calendar

We have just eight confirmed earnings reports on the Wednesday earnings calendar that are mostly very small-cap companies.  Notable earnings include DAL & FAST.

News & Technicals’

President Biden is on his way to Saudi Arabia.  While campaigning in 2019, Biden vowed to treat the Saudi kingdom as “the pariah that they are,” and as president, he vocally criticized the country’s human rights abuses.  Recently, Biden wrote in an op-ed that “from the start, my aim was to reorient — but not rupture — relations with a country that’s been a strategic partner for 80 years.”  A federal judge in a New York bankruptcy court has frozen the remaining assets of the once-prominent crypto hedge fund Three Arrows Capital.  Judge Martin Glenn of the Southern District of New York granted the emergency motion during a court hearing on Tuesday.  Alphabet CEO Sundar Pichai told employees on Tuesday that the company plans to slow down hiring and consolidate investments through 2023.  Pichai wrote that the company will “need to be more entrepreneurial” than it has shown “on sunnier days.”  Microsoft also announced a small percentage of employee cuts yesterday.  The cuts at Microsoft amount to less than 1% of the total headcount.  Microsoft’s Office group took a more cautious approach to hiring in May.  Twitter filed suit against Elon Musk in the Delaware Court of Chancery on Tuesday after the billionaire said he was terminating his $44 billion deal to buy the company.  Twitter said that Musk’s conduct during his pursuit of the social network amounted to “bad faith,” and it accused the Tesla CEO of acting against the deal since “the market started turning.”  Treasury yields traded flat early Wednesday, with the 10-year at 2.96% and the 30-year rising slightly to 3.16%.  Unfortunately, the 2/10 remains inverted, with the 2-year trading at 3.05%.

The Tuesday open quickly reversed the bearishness of the overnight futures but, by the end of the day, reversed again, leaving behind shooting star candle patterns waiting on the CPI inflation data.  However, the waiting is almost over, and the results will likely be the driving force for at least the morning session.  Will it show that inflation is still on the rise as many analysts suggest, or will it show us the Fed’s activity is working?  No matter what it shows, expect considerable price volatility in reaction and then a quick shift to thinking about what happens next when the big banks begin to report on Thursday.  If that’s not enough to keep you on the edge of your seat, remember that the PPI is Thursday morning to add another shot of uncertainty.  Which direction will we go when the choppy low-volume logjam of the last two weeks finally breaks?  Stay tuned because we will likely soon find out!

Trade Wisley,

Doug

Uncertain Low-Volume Chop

Uncertain Low-Volume Chop

The bears displayed a slight upper hand yesterday, reacting negatively near price and technical resistance levels on uncertain low-risk chop. The price action produced some bearish some evening star-type patterns on the index charts by the close.  Currency fluctuations and a persistent 2/10 bond inversion suggest recession and filling traders and investors with uncertainty as we wait on CPI and the beginning of earnings season.  As we wait, expect more of the same chop but be ready for the possibility of significant price swings that low-volume conditions can create.  So, as Wednesday begins a slot of possible emotion-filled market-moving data, plan your risk carefully.

Asian market mainly closed lower overnight, with Japan leading the way down 1.77%.  The risk-off sentiment also has bearish effects on European markets this morning, trading in the red across the board.  U.S. futures point to a bearish gap down open as the dollar surges higher, and the 2/10 bond inversion weighs on investor sentiment while we wait on the CPI before the bell Wednesday morning.  Buckle up for another day of uncertainty.

Economic Calendar

Earnings Calendar

On the Tuesday earnings calendar, we have just four confirmed reports.  Notable reports include PEP, ANGO, and AMX,

News & Technicals’

Fears of a recession have grown in recent weeks due to rising uncertainty over the bloc’s energy supply, with Russia threatening to reduce gas flows to Germany and the broader continent.  Russia temporarily suspended gas deliveries via the Nord Stream 1 pipeline for annual summer maintenance works on Monday.  As a result, the Euro teeters on the brink of parity with the U.S. dollar, creating considerable fluctuation in currency markets.  The bankruptcy filing from Three Arrows Capital (3AC) triggered a downward spiral that wrapped in many crypto investors.  The hedge fund failed to meet margin calls from its lenders.  “3AC was supposed to be the adult in the room,” said Nik Bhatia, finance and business economics professor at the University of Southern California.  Billionaire investor William Ackman, who had raised $4 billion in the biggest-ever special purpose acquisition company (SPAC), told investors he would be returning the sum after failing to find a suitable target company to take the public through a merger.  The development is a major setback for the prominent hedge fund manager who had initially planned for the SPAC to take a stake in Universal Music Group last year when these investment vehicles were all the rage on Wall Street.  PepsiCo beat on the top and bottom line this morning, raising its revenue outlook with sales and topping expectations.  Treasury yields dipped in early Tuesday trading, with the 10-year declining to 2.92% and the 30-year slipping to 3.12%.  Unfortunately, the 2-year remains inverted over the 5-year and 10-year bonds continuing to signal recession.

Monday’s market price action was about as expected as the uncertainty kept the market locked in an uncertain low-volume chop.  The bears seemed to end the day with a little edge leaving behind some evening star-type patterns at or near price resistance.  Although it appears that we will see a bearish morning gap following through to the downside this morning, it would not be a surprise to see the choppy price conditions continue after the open as we wait on the CPI and the beginning of the earnings season.  On the bright side, the T2122 indicator is once again indicating we are nearing a short-term oversold condition, but it would be hard to imagine an enthusiastic relief rally ahead of the uncertainties the market faces.  However, stranger things have happened, and I would not rule out the possibility of anything in this low-volume environment.   

Trade Wisely,

Doug

Calm Before the Storm

The good news is that the low-volume chop is likely coming to an end, but this calm before the storm could prove equally challenging for traders.  Uncertainty about what comes next will play a significant role in the Monday and Tuesday market as we wait for CPI, PPI, Retails Sales and the big bank reports to kick off on Thursday.  According to the Fed and many talking heads, the consumer is in great shape!  We will soon find out if this is true or if earnings prove this to be another “transitory” tall tale. 

Asian markets closed mostly lower overnight, with the tech-heavy Hang Seng index leading the selling down 2.77%.  Across the pond, as Europe’s natural gas supplies shut down, their markets trade red across the board this morning.  As we wait for a big week of market-moving economic reports and the beginning of the earnings season, U.S. futures point to a bearish open with the uncertainty of what lies ahead. 

Economic Calendar

Earnings Calendar

The official kick-off of 3rd quarter earnings is Thursday, but we will have a few as we build-up to the big bank reports.  Notable reports include AZZ< PSMT & VOXX.

News & Technicals’

Operator Nord Stream AG confirmed the maintenance works, which are scheduled to run from Monday through to July 21, got underway as planned on Monday morning.  As a result, Russian gas flows to Germany are expected to drop to zero later in the day.  Klaus Mueller, the head of Germany’s energy regulator, believes that the Kremlin may continue to throttle Europe’s energy supplies beyond the scheduled end of the maintenance works.  Johnson formally resigned as leader of the Conservative Party on Thursday but said he would stay in Downing Street until a successor was chosen.  The prime minister’s ousting coincides with a particularly perilous period for the U.K. economy.  Inflation hit a new 40-year high of 9.1% in May, and the country is facing a cost of living crisis.  “The immediate outlook is likely to hinge on whether Johnson manages to stay on for the next two months – in which case markets risk a period of additional volatility going into the summer,” AXA IM’s Adegbembo said.  Shares of the company fell nearly 9% in the U.S. premarket before paring some losses to trade around 7% lower.  Musk’s attorney notified Twitter’s board on Friday that he wanted to cancel the deal.  Musk on Monday posted a meme mocking Twitter management over the botched deal.  “They said I couldn’t buy Twitter.  Then they wouldn’t disclose bot info.  Now they want to force me to buy Twitter in court.  Now they have to disclose bot info in court,” the meme read.  Bret Taylor, Twitter’s chairman, said he intends to see the deal through and said the company plans to take legal action against Musk.  If Twitter files a lawsuit against Musk, the parties will likely face a long legal battle ahead.  Chinese manufacturers are starting to see demand for consumer goods in developed economies tail off after a strong rebound from pandemic shocks.  Spot ocean freight rates between China and major U.S. and European markets are falling as consumer demand retreats.  Goods demand is “normalizing,” leading to significant global growth and slow trade but not quite a recession yet.  Treasury yields eased slightly in the early Monday trading, with the 10-year dipping to 3.07% and the 30-year slipped to 3.24%. 

Uncertainty is likely in abundance in Monday and Tuesday’s market, which could be described as the calm before the storm.  Market moving reports such as CPI, PPI, Retail Sales, and the beginning of 3rd quarter earnings with the big banks starting on Thursday morning.  We can expect considerable price volatility peppered with intraday whipsaws and full overnight reversals in the days and weeks ahead.  How have companies performed in the current economic downturn facing a possible recession?  We have been told repeatedly that the consumer is in good shape, but now we find out if that’s true or just another “transitory” moment.  The good news is that the low-volume chop will likely end soon but expect the price action to remain highly challenging as the drama unfolds.

Trade Wisely,

Doug

Nice Relief Rally

The bulls went to work on Thursday, with the tech giants enjoying the majority of the buy-side activity that finally produced a nice relief rally with very anemic volume.  That raises some uncertainty on the conviction of the rally and if it can produce enough buyer momentum to deal with the technical and price resistance levels above.  With the Employment Situation report before the bell, we will have to see if it continues to inspire the bulls or if the bears will become reengaged at resistance heading into the uncertainty of the weekend.

Asian markets traded mixed to close the week with muted gains and losses in reaction to the shooting death of PM Shinzo Abe.  European markets trade mainly bullish this morning, trying to finish the week on a positive note.  U.S. futures have fluctuated between slightly bullish to slightly bearish as we wait on the Employment Situation report, likely to create some premaket volatility as we finish this short trading week. 

Economic Calendar

Earnings Calendar

We have no confirmed earnings reports for today.

News & Technicals’

Shinzo Abe, the former prime minister of Japan, died Friday after being shot.  The former prime minister was shot while delivering a speech in the city of Nara, near Kyoto.  The incident has sent shockwaves through Japan, where gun violence is extremely rare.  Crypto lender Celsius artificially inflated the price of its digital coin, failed to hedge risk, and engaged in activities that amounted to fraud, a lawsuit alleges.  Former investment manager Jason Stone sued Celsius on Thursday as pressure continues to mount on the firm amid a crash in cryptocurrency prices.  Stone alleges in the lawsuit that Celsius was running a “Ponzi scheme.”  Shares of Twitter fell after markets closed on Thursday following a report from The Washington Post that said billionaire Elon Musk’s deal to buy the company is in jeopardy.  The deal was already uncertain since Musk had demanded more information on the percentage of spam accounts on the platform.  Twitter held a virtual briefing with reporters earlier on Thursday to explain which accounts on its platform are bots or spam accounts.  GameStop has fired its Chief Financial Officer, Mike Recupero.  It’s making staff cuts across departments as part of an effort to turn around the videogame retailer.  CEO Matt Furlong explained the changes in the memo to employees and said the company has to take bold steps as it invests in its digital future.  Johnson resigned as Conservative Party leader on Thursday, finally bowing to immense political pressure after an unprecedented flood of government resignations and a Cabinet revolt.  Political analysts believe most potential party leaders have secretly planned their campaigns for several weeks.  Likely contenders include former Health Secretary Sajid Javid, Finance Minister Nadhim Zahawi, former Finance Minister Rishi Sunak, and Foreign Secretary Liz Truss.  Treasury yields dip slightly in early Friday trading though the 2/10 remains inverted with the 2-year at 3.00%, 10-year at 2.99%, and the 30-year trading at 3.18%.

Thursday finally delivered a nice relief rally but did so on extremely light volume, raising questions of conviction as the indexes approach overhead resistance.  Again, the tech giants lead the rally as traders hope with a dose of speculation that earnings from the tech leaders will perform despite the inflation-stressed consumer.  This morning we will turn our attention to the Employment situation number consensus expects a payroll number to decline.  However, there is still confidence it will not show signs of recession.  We will soon find out with the release before the bell with some fed speaks from John Willams tossed in for good measure.  Finally, the T2122 indicator says we still have room for some upside price action, but the question is will it be enough to overcome the technical and price resistance levels as we slide into the weekend?  So, get ready; the show is about to begin!

Trade Wisley,

Doug

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