Did the Gap-and-Reverse Mean Support?

Markets did a classic gap-and-reverse on Wednesday as the bears gapped all 3 major indices significantly lower and then the bulls slowly rallied all day.  All 3 indices printed strong white candles, but only the QQQ managed to completely close the gap.  On the day, SPY lost 0.28%, DIA lost 0.52%, and QQQ gained 0.11%.  The VXX rose almost 5% to 42.35 and T2122 fell down close to the oversold territory at 26.45.  10-year bond yields rose to 1.674% and Oil (WTI) fell over 3% to $63.40/barrel.

Bitcoin had one hell of a roller-coaster day Wednesday. It suffered more than a 30% drop (from over $43,000 to $30,000) before putting in a 30% rally (from $30,000 back up over $42,000) and then finally settled closer to the top of the range ($38,900).  While some analysts called this a capitulation, others explain the fall as a reaction to the recent reversal of acceptance of the cryptocurrency. For example, the IRS and DOJ have recently both launched investigations into the main cryptocurrency exchange, China warned their financial institutions not to provide services related to any cryptocurrency, and TSLA announced no longer accepting the would-be currency in payment for their products.

In the April FOMC Meeting Minutes released Wednesday, the Fed basically said what it has been saying for months.  They are unconcerned about that they see as transitory inflationary pressures.  Specifically, “there is no need to change policy now, but it might be appropriate to consider tapering at some point” was the consensus view.  Markets did not react since this was a known position. However, some analysts say the minutes showed the Fed may reconsider if rapid progress continues.  As always, the glass is either half full or half empty depending on your perspective.

Related to the virus, US infections are rising again after plateauing at a level above the fall level.  The totals have risen to 33,802,324 confirmed cases and deaths are now at 601,949.  The number of new cases is falling again and are back down to an average of 29,975 new cases per day (the lowest number since June). However, deaths are still plateauing at the new lower levels, now at 591 per day (the lowest number since July 2020).  Dr, Fauci (NIH) told the press that infection rates are decreasing in all 50 states, down 18% nationally from one week ago.  He told Axios that should the trend continue, it will be safe enough to resume indoor activities like dining soon.  However, in answer to one question he reiterated that it is likely we will need a booster shot within a year of completing vaccination.  JNJ announced Wed. evening that 100 million doses of its vaccine are held up in FDA inspection due to contamination problems at one of JNJ’s contract manufacturers (Emergent). No word on whether this is somehow related to JNJ falling behind promised delivery schedules to the EU.

Globally, the numbers rose to 165,629,929 confirmed cases and the confirmed deaths are now at 3,433,602 deaths.  The trends are slightly better again as we have seen a slowing in the rate of increase no that India is believed to have peaked.  The world’s average new cases are falling quickly now, but remain at 637,518 new cases per day.  Mortality, which lags, is also falling, but remains at 12,360 new deaths per day.  The UK is taking heat as it defends continuing to allow direct flights from India amid a 28% surge in cases of the Indian 617 variant.  However, the number of cases is still just under 3,000 per day. As if semiconductor shortages were not bad enough already, Taiwan is now battling its worst outbreak (which pales in comparison to neighboring China, let alone the US).  So far, businesses have not been ordered shut.  However, that country is the world’s largest supplier of silicon semiconductors.

Asian markets were mixed overnight on mostly modest moves.  New Zealand (+1.27%) and Australian (also +1.27%) were the largest movers with India (-0.83%) pacing the losses.  In Europe, markets are broadly green with only Russia and Norway in the red.  The FTSE (+0.21%), DAX (+0.52%), and CAC (+0.58%) are fairly typical of the continent at this point in the day.  As of 7:30 am, US Futures are pointing to a mildly down open.  The DIA is implying a -0.33% open, the SPY implying a -0.19% open, and the QQQ implying a flat -0.03% open.

The major economic news scheduled for Thursday is limited to Weekly Initial Jobless Claims and Philly Fed Mfg. Index (both at 8:30 am).  Major earnings reports before the open include BJ, CSIQ, HRL, KSS, WOOF, RL, and TCEHY.  Then after the close, AMAT, DECK, ENS, FLO, and ROST report.

After the nasty gap-down, the bulls were in charge all day Wednesday. However, they came up just a bit shy of erasing the gap except the QQQ which just barely got the job done. All 3 major indices now sit just above support that may have held yesterday. It is very hard to trade a gap-and-fade market. It's even harder when markets may be at a short-term swing point. So, be careful. With that said, it is likely to be Jobless Claims that call the tune this morning...or more to the point, how those claims can be inferred to impact inflation. This is because it remains the fear of losing an "easy Fed" that has powered the bears for some time now.

If you're trading this market, be very nimble, hedged and/or small. As always, keep locking in your profits when you achieve your trade goals and maintain discipline by following your trading rules. Follow the trend and respect support and resistance levels. However, don't just assume they will hold. Consistency is the key to long-term trading success. So, keep hitting singles and doubles rather than swinging for the fence.

Ed

Swing Trade Ideas for your consideration and watchlist: No Trade Ideas today. 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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