China Inflation and Infrastructure Turn

Markets opened mostly flat and then put in a steady rally almost all day.  However, a selloff the last 15 minutes showed profit-taking to end the week.  Nonetheless, all 3 major averages put in strong white candles and created potential Fig Newton type patterns.  On the day, SPY gained 1.08%, DIA gained 0.68%, and QQQ gained 1.26%.  The VXX started with a 1-for-4 split to open at 41.36, but then sold off almost 4% to close at 40.17 and T2122 rose deeper into the overbought territory at 95.67.  10-year bond yield closed up slightly to 1.56% and Oil (WTI) gained 1% to $62.04/barrel.

US Markets may see China as a forerunner of what is to come in the US.  That country has reported record growth in the 1st quarter with a strong recovery underway.  However, Sunday night Bloomberg also reported Chinese April factory inflation is running far ahead of analyst expectations based on surveys of 500 Chinese small and medium-sized enterprises.  If US markets see that as an indication of the future for the US, the bulls may have a tough row to hoe.

Speaking of potential causes of future inflation, there was a twist in the Infrastructure plan plot on Sunday. Key Democratic Senator (a party rebel) Manchin praised the GOP $568 billion “counter-proposal” to the Democratic $2.25 trillion plan.  However, on the same day, Republican Senator Graham told Fox News that GOP Senators were ready to back as much as $900 billion in a stimulus package.  This could be additional evidence that some infrastructure improvement plan will get passed this time.

Related to the virus, US infections are rising again after plateauing at a level above the fall level.  The totals have risen to 32,824,389 confirmed cases and deaths are now at 586,152.  The number of new cases has ticked higher again and are back above the peak of last summer to an average of 57,208 new cases per day.  However, deaths are just starting to plateau again, now at 724 per day.  After the close Friday, the CDC lifted the pause on JNJ vaccine use, which will help with shortages.  However, a drop in vaccine demand had already become more than a bit concerning and could become the primary obstacle to herd immunity as early as May according to Dr. Fauci (NIH).

Globally, the numbers rose to 147,874,851 confirmed cases and the confirmed deaths are now at 3,124,681 deaths.  The trends have reversed and are now trending toward trouble again as we have seen significant upticks recently.  The world’s average new cases continue to rise and is now at the all-time peak and with 818,823 new cases per day.  Mortality, which lags, is also rising sharply again at 12,742 new deaths per day. The situation is India has become dire as the country broken the global record for new cases for the 5th straight day.  The world has started mobilizing to send oxygen and other aid to that country.  However, in Europe, the UK and the Netherlands have further eased restrictions.

Overnight, Asian markets were mixed.  Taiwan (+1.57%) and South Korea (+0.99%) led gainers while Shanghai (-0.95%) and Shenzhen (-0.89%) passed the losses.  In Europe, markets are mixed, but lean green in modest trading so far today.  The FTSE (+0.14%), DAX (-0.07%), and CAC (+0.15%) are indicative of the continent.  Only Greece (+1.69%) has moved more than a percent so far today.  As of 7:40 am, US Futures are pointing to a mixed and relatively flat open.  The DIA is implying a +0.10% open, the SPY implying a -0.09% open, and the QQQ implying a -0.36% open.

The major economic news scheduled for Monday is limited to Mar. Durable Goods Orders (8:30 am).  Major earnings reports on the day include ACI, CHKP, LII, and OTIS before the open.  Then after the close, AMP, AMKR, AXTA, BRO, CDNS, CNI, LU, MKSI, NXPI, OMF, PKG, RRC, SBAC, SSNC, TSLA, and UHS report.

Ahead of a big week of earnings, another Fed Meeting, and other major economic news, markets may be a little uncertain this week. The bulls have the longer-term momentum, but the last week was a choppy sideways slog. Looking at it more broadly, we are still very near the highs and still quite extended after the early April run. Fear remains very low, considering where we are and what we've seen the last week. So, trade accordingly.

Follow the trend, do not predict reversals, but also avoid chasing trades you have missed. Respect support and resistance. Keep taking your profits off the table when you can and maintain your discipline. Stay on the right side of the market trend and follow those trading rules. As we know, consistency is the key to long-term trading success.

Ed

Swing Trade Ideas for your consideration and watchlist: LAZR, VLDR, PLUG, FCEL, UAVS. You can find Rick's review of tickers on his YouTube Channel here. Trade your plan, take profits along the way, and smart. Also, remember to check for impending earnings reports. Finally, remember that any tickers we mention and talk about in the trading room are not recommendations to buy or sell.

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