The bulls fueled by hope of declining inflation looked past economic data showing contracting economy to break the consolidation trigging the classic short squeeze.  The DIA remains the strongest index and the only one above its 50 day morning average and long-term bearish downtrend.  With worries of recession and the ramp up for 1^st quarter earnings beginning this week traders should plan for considerable price volatility.  There is no shortage of highly emotional speculation so expect big point moves and punishing whipsaw as well as full overnight reversals as drama unfolds.

While we slept Asian markets rallied with the tech heavy HSI leaning the way higher up 1.89% at the close.  European markets also trade mostly bullish with the reopening of China providing the inspiration.  U.S. point to bullish open trying to follow through on Friday’s but with so much overhead resistance in the SPY, QQQ and IWM we can’t rule out the possibility of a pop and drop, so be careful rushing in with a fear of missing out. 

Economic Calendar

Earnings Calendar

We start to step up on the earnings this week and should expect considerable volatility with some big bank earnings at the end of the week.  Notable for Monday include AYI, AZZ, JEF, CMC, PSMT, TLRY, WDFC.

News & Technicals’

Bolsonaro’s supporters stormed Brazil’s Congress, Supreme Court and presidential palace in Brasilia on Sunday.  The demonstrators refused to accept Bolsonaro’s legitimate electoral defeat to leftist rival Luiz Ignacio Lula da Silva.  “The coup plotters who promoted the destruction of public property in Brasilia are being identified and will be punished,” Lula said in a tweet, vowing to resume work in the palace on Monday.

At around 35,000 feet, the Virgin Orbit rocket will be deployed over the Atlantic, carrying nine small satellites into orbit in what is known as a horizontal launch.  Crowds are expected to gather to watch the event, with Spaceport Cornwall having invited the general public to witness what they have described as a “historic moment.”  The designated launch event will also include a “silent disco” tent.

The U.S. House of Representatives elected Kevin McCarthy of California as speaker in the 15th round of votes early Saturday.  McCarthy made extraordinary concessions to win over a small bloc of far-right holdouts who blocked his speaker bid.  McCarthy said the tense showdown on the House floor this week was proof that he is not someone who gives up easily.

Although Friday’s economic data continued to show a slowing economy the hope that inflation pressures are easing inspired the bulls to break the consolidation log jam trigging the classic short squeeze.  Though we have a relatively light economic calendar this week Tuesday we will have to deal with a Jerome Powell speech and CPI reading on Thursday as earnings season ramps up.  Emotion and uncertainty are high so traders should plan for considerable volatility as worries of recession continue to loom.  The Dow remains the strongest of the indexes with the SPY, QQQ, and IWM remain under the long-term bearish trends and considerable resistance.  Expect substantial point whipsaws and punishing overnight reversals in the days and weeks ahead. 

Trade wisely,

Doug